Bank rating system revolutionizes loan allocation, boosting financial system safety.
The article discusses how banks use internal rating systems to decide how much money to lend and how much capital to set aside for potential losses. By using their own ratings, banks can better understand and manage the risks of lending money. This helps banks be more sensitive to potential losses and encourages them to improve their risk management practices. The rating system is crucial for determining how much capital banks need to keep on hand to cover potential losses.