Giacomo De Laurentis

Lessors' recovery risk management capability

Purpose - The purpose of this paper is to verify recovery risk management capabilities by lessors. It tests several hypotheses and finds out interesting specific results for lessors. Design/methodology/approach - The approach is empirical: two different database of leasing contracts are analysed with econometric methodologies. Findings - There is clear evidence that: lessors are Research limitations/implications - The data used are large enough, but come from institutions concentrated in Italy. Future research could be extended to other relevant countries. Practical implications - Results presented are verified in leasing companies which made a limited use of rating systems and credit risk model: they have been achieved by the continuous improvements of traditional lending practices. The development of modern reliable systems can enhance risk management capabilities; our findings can help building more structured and advanced credit risk management tools. Originality/value - The paper adds to the literature in the sense that gives clear evidence of a neglected but important fact of real world credit markets: financial intermediaries have the capability of properly assessing risk components and manage loss given default (LGD) in order to control overall credit risk.

Credit Rating Culture

Credit ratings are part of mass media communications and an increasingly important issue in bank-customer relations. We present an inquiry on rating culture involving branch officers, professionals and managers of a sample of banks. It confirms that the misleading messages of mass media are prevailing even among financial industry operators. To clarify the key concepts of credit ratings that should be part of a shared culture, we focus on the borrower/issuer credit ratings and we explain why is normal to have non-aligned ratings issued by different ratings agencies, why these ratings may differ from “implied ratings” (those derived from bond, equity and credit derivatives markets) and from “internal ratings” (those assigned by individual banks, using proprietary data, models and processes).