In the Basel II framework, external ratings are used for the purpose of enhancing the risk sensitivity of the framework, for example, by being incorporated into assessments of the credit quality of an exposure or creditworthiness of a counterparty – and thus the imposition of capital requirements. External ratings are primarily used under the standardised approach for credit risk, 10 but also to risk-weight securitisations exposures. The different uses of external ratings generally correspond to probability of default treatments under the standardised approaches, and to situations where the use of internally generated ratings is impossible or difficult given, for.
