In recent history, financial markets worldwide experienced severe turmoil due to the subprime crisis originating from the practice of US mortgage banks to securitise loans given especially to subprime borrowers. In the same crisis, several distressed banks were bailed out by states with even...

The key concept underlying the Basel II framework for risk measurement and corresponding equity capital standards is that the existing regulations pertaining to credit risk will be individualised through reference to the internal ratings of banks. In accordance with the regulatory guidelines,...