Regulatory Innovations & Internal Rating: New Challenges in Banking

Several studies have demonstrated the significant role of bank loans as an indispensable source of financing for SMEs. This holds true both for countries with large and highly dynamic stock markets (the U.S., the U.K., Japan, etc.) and for countries that have not yet succeeded in developing their financial markets. In any case, the use of public offering mechanisms (stocks, bonds, commercial paper, etc.) is only feasible for relatively large SMEs with a proven track record that meet the fairly stringent conditions for accessing these markets (notably disclosure and reporting requirements). As a result, major regulatory changes-combining a overhaul of the banking system with financing mechanisms-are likely to bring about significant changes. Our work also examined the potential impact of the introduction of institutional credit guarantee schemes on expanding SMEs' access to bank financing.