Bank Risk Rating of Business Loans

摘要

In recent years many banks have attempted to improve the measurement and211u001emanagement of credit risk ratings to business loans. Virtually all large banks 211u001enow assign such ratings. However, until recently there has been little 211u001einformation on the use of risk ratings by smaller banks. Recent revisions to the 211u001eFederal Reserve's Survey of Terms of Business Lending and telephone consultations 211u001ewith more than 100 banks on the survey panel provide data on the prevalence and 211u001eprecision of risk rating systems at banks of all sizes. We find that the use of 211u001erisk rating systems is quite widespread, but that smaller banks generally have 211u001eless detailed systems than do larger banks. In addition, the new survey data 211u001eallow us to assess the relationships between loan risk ratings and loan terms. 211u001eNot surprisingly, riskier loans generally carry higher interest rates, even after 211u001etaking account of other loan terms. There are more complex relationships between 211u001eloan risk and other loan terms. Regression results indicate that banks of all 211u001esizes price for risk. We don not find a relationship between reported loan risk 211u001eand delinquency and charge-off rates. However, this may reflect how recently the 211u001erisk rating data have become available.