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Internal rating by banks has led to a rut in the financial markets with a lot of risk being taken on public money without anybody sparing a thought about it and later the same reckless 'investor' being bailed out by pumping further public money. A third-party credit review based provisioning (currently applicable in India and Australia only) will go a long way in maintaining solvency of public financial institutions and banks.
I agree. Internal Rating Based approach is debatable and can have its pitfalls as its not standardized. As against this the standardized approach of rating by creditworthy Rating agencies is much more prudent as its non-partisan and independently done. This will surely go a long way in maintaining solvency of banks and FIs.
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