The Bank Tailored Integrated Rating

Abstract

We develop a banks specific integrated rating, tailored incorporating the various heterogeneity dimensions characterizing financial institutions (see Mantovani et al. 2013 and 2014 regarding the heterogeneity risk analysis in corporate firms), named bank tailored integrated rating (BTIR). The approach is inherently coherent with the challenging frontier of forecasting tail risk in financial markets (De Nicolò and Lucchetta, J Appl Econ 32(1):159-170, 2017) since it considers the downside risk in the theoretical framework. The innovation consists in using the integrated rating (IR) with the pre-selection of the variables through a statistical procedure that takes into account the characteristics of risk and greater heterogeneity of the banks. A Vector Autoregressive Model (VAR) is only a first simple application proposal.