Internal Rating Systems: A Critical Vision

Abstract

The evaluation of a company’s creditworthiness has become more sophisticated following the application of the Basel II set of banking regulations. The Basel II Accord has brought about important modifications to the risk management system and, in particular, introduced an opportunity for the banks to use internally created rating models, considered an innovative form of business diagnosis. However, the use of these systems is not without flaws which can be ascribed, on one hand, to economic phenomena and, on the other, to the impact they have on bank management.