CREDIT RATING - ASSESSING RISKS RELIABLY

On 15 September 2008, the Lehman Brothers investment bank collapsed. The bursting of the real estate bubble is regarded as the cause of this collapse. In previous years in the USA, in particular, real estate loans had been awarded on a large scale, even to individuals who, based on their financial situation, ought not to have received any credit. As interest rates were initially low, borrowers were able to meet their payment obligations. However, in the course of time, interest rates rose, which resulted in more and more defaults.

As the American real estate loans were traded throughout the world, many banks recorded high losses when the real estate bubble burst. Following the bankruptcy of Lehmann Brothers on 15 September 2008, more and more banks got into enormous financial difficulties. On 13 October 2008, the Federal Republic of Germany alone therefore decided on a rescue package for banks of just under 500 billion euro. The aim thereby was at least to reduce the negative impact on the German economy. Whereas the German economy emerged relatively well from the financial crisis, many nations are still suffering from its consequences today.

The example clearly shows how uncontrolled granting of loans can give rise to global financial and economic crises. That is why reliable assessment of credit risks is enormously important to banks.

The Professorship of Quantitative Methods, specializing in Econometrics, researches into methods that can be used to provide a reliable assessment of a borrower's credit risk.