What is a long-loop reflex?

What is a long-loop reflex? A rapid stretch of a voluntarily contracting muscle evokes electromyographic (EMG) responses at various latencies, as described by Loo, K. McCloskey, D. (1985). Response latency measures the time delay between a perturbation and response, the response is typically greater in a stretch than a jolt as found by Lee and Tatton (1975) who also proposed that there are typically 3 responses to a muscle stretch namely M1, M2 and M3. The first, M1, represents the short latency involuntary monosynaptic spinal stretch reflex involving primary afferents. M2 represents the delayed response corresponding to the, perhaps transcortical, long loop reflex response and M3 represents the latency for a voluntary response mediated by the cerebellum. These 3 distinct responses can be displayed graphically, as shown in figure 1. From analyzing figure 1 we can see that, using the terminology introduced by Lee Tatton (1985), M1 is the response seen approximately 45-60ms after the perturbation, M2 represents the increase in EMG activity 60-90ms after the perturbation and the increase in EMG activity between a latency of 90-110ms is termed M3. Any response with a latency of greater than 110ms is a voluntary response and is not considered to be a reflex response. These findings have been widely accepted and are frequently cited in later studies, for example in the study by Thilmann, A. F., Schwartz, M., Topper, R. Fellows, S.J. and Noth, J. (1991). Suminski, A.J., Rao, S.M., Mosier, K.M. and Scheidt, R.A. (2007) made a similar discovery finding short latency responses arising from monosynaptic reflexes, consistent with the latency of the M1 response. Petersen, N., Christensen, L., Morita, H., Sinkjà ²r, T. and Nielsen, J. (1998) showed that ankle dorsiflexors typically show an M3 response. More interestingly, this paper also claims that the M2 response in the upper limb seems to correspond with the M3 response in the lower limbs. According to Corden,  D.M., Lippold,  O.C.J., Buchanan, K. and Norrington, C. (2000), the second component of the stretch reflex response, M2, was first discovered by  Hammond (1955) who believes that the long latency is due to the long loop reflex travelling the extra distance to the cortex. Hammond (1956) studied the EMG response in the bicep muscle and found that the earliest voluntary muscle activation in response to mechanical taps occur after 90-100ms which contradicts with the later findings from Lee Tatton (1975) who claim voluntary response represents latencies greater than 110ms. This raises the possibility that the long loop reflex may have voluntary input. There have been many studies carried out investigating if the long-loop reflex is mediated by transcortical pathways. Logically, one would expect reflexes to be a hard-wired response and voluntary movement to have variation in responses. However, Evarts and Fromm (1981) provides evidence suggesting variability in their study of the wrist position. They concluded that the long loop reflex gives a pathway for the motor cortex to initiate closed loop feedback control to the flexors and extensors of the wrist. It can be argued that long latency responses fit both voluntary and reflex criteria. Arthur Prochazka, for one example, took particular interest in ambiguity for the correct definition of a reflex. For instance, is it regarded as a response which happens too quickly for the brain to notice, in which case, the M2 response would not be classed as a reflex since it is of long latency, or can it be defined as an involuntary response, in which case, the M2 response would be classed as a reflex since it occurs below the time threshold for it to be a voluntary action and occurs without any conscious awareness of the movement. If the long loop reflex goes via the motor cortex, it could be influenced voluntarily. A notable study by Loo McCloskey (1985) proposed that long loop reflexes are variable. This report studied the EMG responses of the flexor pollicis longus when a stretch was applied to the thumb-tip. The subject was required to initially have the muscle in a fixed, contracting state generating a constant force to give a baseline EMG to compare any results found against. Their results showed that, in the isometric holding task, all participants of the study could significantly alter the long latency responses to a stretch with some subjects recording up to 95% reduction in EMG activity when instructed to let go as opposed to resist. This indicates that motor set has an influence on the long loop reflex. Although the results for the isometric tracking, isotonic tracking and weight lifting tasks were less convincing, they still showed the ability to decrease EMG activity when told to let go not resis t, contradicting previously claimed results from Marsden et al (1976) which suggested that prior instructions had no influence on EMG responses. When the thumb was anaesthetised, there was no evidence of abolishment of the long latency EMG response, contrary to what was noted by Marsden, Merton Morton (1971). However, Loo McCloskey (1985) found there was a significant linear correlation between the percentage increase in perceived heaviness and the percentage reduction in long latency reflex. This study provides us with defining results, however, not all subjects performed all tests and not all results were significant so there still remains room for debate. Long loop reflexes were found to be abolished or depressed by lesions to the pathways to and from the cerebral cortex, again, giving the view that the long loop reflex does take a transcortical pathway. Matthews, P. B., Farmer, S. F. Ingram, D. A. (1990) also concluded from their study on the localization of the stretch reflex of intrinsic hand muscles in a patient with mirror movements that long loop reflexes are mediated transcortically. The long loop reflex, it has been suggested, has a slower onset due to the longer route the reflex has to take. A monosynaptic spinal reflex arc is clearly a shorter route than the long loop reflex which, as some evidence shows, could go via the cortex. In a previous study, Hammond (1954) suggests the main feasible explanations for the delayed M2 response could be due to the longer neural pathway it takes or that the neurones involved are slower conducting. Matthews (1984) discovered the same findings as he suggested in his paper that the M2 response is mediated by muscle spindle secondary endings which by nature are slower conducting afferents. Corna, S., Grasso, M., Nardone, A. and Schieppati, M. (1995) also concluded that M2 response in the ankle muscles is mediated by group II afferents. Marsden, C., Merton, P., and Morton, H., (1976) argued that the long loop reflex could not be altered by the motor set and hence concluded that the response was more likely to be a reflex respons e than voluntarily response. However, as pointed out by Loo McCloskey (1985), the subjects of the experiment were in fact the researchers themselves, hence, the results may be bias because sub-consciously they are aware of the experiment and what is going to happen and already have a prediction of what they want to happen. Rothwell, Traub and Marsden (1980) also suggested that long loop reflexes are not variable. Gassel (1970) claims that long loop reflexes occur predominantly with stimulation of cutaneous nerves or dorsal roots. To this end, Marsden et al. (1978) studied the stretch reflex response in the human flexor pollicis longus, which when stimulated, results in flexion of the thumb. If this muscle is stabilized, for example, fixed in plasticine, then cutaneous nerve activity can be detected. It is proposed that long loop reflexes going via the motor cortex, have become progressively more important in effective motor control of motor skills. There is an initial judgement of the required strength of the muscle contractions needed before any specific movement. Any error in the estimate will result in the activation of the muscle spindle receptors and will result in a corrective long loop reflex, which causes an appropriate change in the signals from the motor cortex, correcting the response of the movement. This happens with a latency of less than 50 msec. This is about 70msec for lower limbs. This corrective compensation is automatic and unconscious. The pathways for 1a receptors up to the motor cortex and hence participation in long loop reflexes have been recognized in mammals such as the cat (Landgren, 1984). Clarac, F. (2005) suggests that the long loop reflexes play an important role in the adaptation of flexors and extensors and hence are useful in posture and moveme nt. He also suggests that they are involved in the mechanisms for anticipating movement, which supports the evidence of a transcortical route since there is input from the brain. Shemmell, J., An, J.H. and Perreault, E.J. (2009) claim transcortical long-loop reflexes are useful in adding flexibility to the human stretch reflex allowing adaptation to a wider range of functional tasks. They also highlight in their report that reflex sensitivity is increased in unstable environments. This study also provides evidence supporting the transcortical route of the long loop reflex since, similar to the findings of Loo McCloskey (1985), if the subject was given instruction prior to the perturbation, the long-loop reflex provides the ability to achieve the desired result even if this is contrary to the stabilizing response you would expect. Their study concludes that stretch reflex modulation in tasks that require changes in limb stability is mediated by motor cortical pathways, and that these differ from pathways contributing to reflex modulation that depend on how the subject is instructed to react to an imposed perturbation. The experiment went on to observe the eff ects of using transcranial magnetic stimulation to create a cortical silent period whereby the muscle stretch was timed so that the M2 response of the stretch reflex occurred during this silent phase. As a result of this, the idea that reflex sensitivity could be increased when in a stable environment was abolished. The reflex responses seen from altered task instruction was found to be not influenced by cortical silence. These results demonstrate that task-dependent changes in reflex function can be mediated through multiple neural pathways and that these pathways have task-specific roles. More recently, Petersen, N. et al. (1998) investigated the possibility of a transcortical pathway by applying stretch to ankle dorsiflexors and recording the EMG signals. In the introduction, Peterson et al. (1998) states that it is widely accepted, for muscles in the distal upper limb, for the long-loop reflex (M2) to be mediated by a transcortical reflex pathway. There is little evidence showin g the same result in proximal and lower limb muscles. Thilmann et al. (1991) found that the M2 response showed no significant change in proximal and lower limb muscles after lesions of supraspinal pathways whereas the M2 responses disappeared in hand muscles after the same lesion. A more clinical approach by Diener, H., Dichgans, J., Hà ¼lser, P.-J., Buettner, U.-W., Bacher, M.  and Guschbauer, B. (1984) suggests the long loop reflex is useful in diagnosing multiple sclerosis. Their results showed that 69% of the patients who have multiple sclerosis have a significantly longer M3 latency response in the antagonistic anterior tibial muscle. This increased delay in M3 response suggests demyelination of the neurones and they concluded that their results support evidence that the long loop reflex is mediated by a transcortical pathway. Figure 1: Clarac , F (2005)  The History of Reflexes Part 2: From Sherrington to 2004,  IBRO History of Neuroscience Corden,  D.M., Lippold,  O.C.J., Buchanan, K. and Norrington, C. (2000) Long-Latency Component of the Stretch Reflex in Human Muscle is Not Mediated by Intramuscular Stretch Receptors. Applied Journal of Physiology. 84(1). 184-188. Corna, S., Grasso, M., Nardone, A. Schieppati, M. (1995) Selective depression of medium-latency leg and foot muscle responses to stretch by an aÃŽÂ ¼-agonist in humans. Journal of Physiology. 484. 803-809. Diener, H.C., Dichgans, J., Hà ¼lser, P.J., Buettner, U.W., Bacher, M.  and Guschbauer, B. (1984) The significance of delayed long-loop responses to ankle displacement for the diagnosis of multiple sclerosis. Electroencephalography and Clinical Neurophysiology. 57(4). 336-342. Fromm. C., Evarts, E. (1981). Relation of Size and Activity of Motor Cortex Pyramidal Tract neurons during Skilled Movements in the Monkey. The Journal of Neuroscience. 1(5), 453-460. Gassel, M. (1970) A critical review of evidence concerning long-loop reflexes excited by muscle afferents in man. Journal Neurological Neurosurgical Psychiatrics. 33. 358-362. Hammond, P. H. (1954) Involuntary activity in biceps following the sudden application of velocity to the abducted forearm. Journal of Physiology. 127, 23. Lee, R. G. Tatton W. G, (1975) Motor responses to sudden limb displacements in primates with specific CNS lesions and in human patients with motor system disorders. Canadian Journal of Neurological Sciences, 2, 285-293. Loo, C.K.C. McCloskey, D.I. (1985) Effects of prior instruction and anaesthesia on long-latency responses to stretch in the long flexor of the human thumb. Journal of physiology, 365, 285-296 Marsden, C. D., Merton, P. A., and Morton, H.B. (1976) Servo action in the human thumb. Journal of physiology. 257. 1-44. Marsden, C. D., Merton, P. A., and Morton, H.B. (1978) Anticipatory postural responses in the human subject. Journal of Physiology.  275. 47-48. Marsden, C. D., Merton, P. A., and Morton, H.B. (1981) Human postural responses. Brain. 104. 513-534. Matthews, P. B., Farmer, S. F. Ingram, D. A. (1990) On the localization of the stretch reflex of intrinsic hand muscles in a patient with mirror movements. Journal of Physiology. 428. 561-577. Petersen, N., Christensen, L.O.D., Morita, H., Sinkjà ²r, T. and Nielsen, J. (1998) Evidence that a transcortical pathway contributes to stretch reflexes in the tibialis anterior muscle in man. Journal of Physiology. 512(1). 267-276. Shemmell, J., An, J.H. and Perreault, E.J. (2009) The Differential Role of Motor Cortex in Stretch Reflex Modulation Induced by Changes in Environmental Mechanics and Verbal Instruction, The Journal of Neuroscience. 29(42). 13255-13263. Suminski, A.J., Rao, S.M., Mosier, K.M. and Scheidt, R.A. (2007) Neural and electromyographic correlates of wrist posture control. Journal of Neurophysiology. 97. 1527-1545. Thilmann, A.F., Schwarz, M., Topper, R., Fellows, S.J. and Noth, J. (1991) Different Mechanisms Underlie the Long-Latency Stretch Reflex Response of Active Human Muscle at Different Joints. Journal of Physiology. 444. 631-643.

NY Times Paywall Essay

However the long-term prospects of paywalls remained uncertain. The subscriber growth was slowing down, and many of the paid subscribers of The Times were enticed by the introductory offer of 99 cents for a 4-week subscription. A previous experiment with a paywall, TimesSelect, was abandoned in 2007 after The Times secured 227,000 paying customers. Was the paywall a good idea for the long-term? Would it provide a foundation for a sustainable business model as The Times approached an ever-evolving technology and media landscape? Company Background The New York Times Company was a leading global multimedia news and information company with 2011 revenues of $2. 3 billion and an operating profit of $57 million, and operated The New York Times, the International Herald Tribune, The Boston Globe, and About. com. (See Exhibit 1 for company structure, Exhibit 2 for business units and their revenues, and Exhibit 3 for company financials. ) The company defined its core purpose as â€Å"enhance[ing] society by creating, collecting and distributing high quality news, information and entertainment. †7 The New York Times, the flagship daily newspaper of the company, was founded on September 18, 1851, by journalist and politician Henry Jarvis Raymond, and former banker George Jones. By 2011, the newspaper had won 106 Pulitzer Prizes, the most of any news organization. Reflecting on The Times’s importance, Michael Hirschorn, the contributing editor of the Atlantic, remarked: The Times still, I think to a remarkable degree, does set the agenda. You really can trace almost any major story these days to something that originally appeared in The Times. The problem is that once it reaches the public, they may not even know it came from The Times. 8 In spite of its prize-winning journalism, The Times was facing significant pressures. Its subscription and revenues had steadily declined over the years (see Exhibits 3 and 4). Its advertising revenues in 2011 were down by over 6% compared with 2010 ad revenues, and in spite of cost cutting, the operating profit in 2011 was 76% less than the previous year. In January 2012, the company sold its Regional Media Group consisting of 16 regional newspapers for $143 million in cash. 9 2 This document is authorized for use only by Karen Lao in Marketing Management taught by A. Prasad from August 2013 to December 2013. For the exclusive use of K. LAO The New York Times Paywall 512-077 The Newspaper Industry The New York Times was not alone in feeling this pressure—the entire newspaper industry was facing significant challenges. Overall circulation in the industry for both weekday and weekend newspapers was declining (Exhibit 5). Traditional sources of newspaper revenues—subscription, retail, and classified advertising—were also declining (Exhibit 6). In contrast, most of the costs for editorial staff, production, and distribution were fixed and had very little room for reduction. Table A shows the revenue and cost structure of a typical U. S. newspaper.

Burial at Thebes

Mia Britton Mrs. Baker DRA 110 4 March 2013 The Burial at Thebes The play Burial at Thebes is a modern translation of Antigone by Sophocles and Seamus Heaney is credited for this recent translation. The plot structure used in Heaney’s work can be described as episodic. This play stands out as episodic because of its early point of attack. For example, at the start of the opening scene Antigone approaches her sister Ismene with news that King Creon has issued a proclamation that their brothers body should not receive a proper burial, and that anyone trying to bury him will be stoned to death.She intends to resist the law and bury Polynecies but, Ismene refuses to assist Antigone. Therefore, Antigone disowns Ismene and pledges never to accept her aid. Another example of episodic play structure in The Burial at Thebes when Eurydice hears from the messengers the death of her son she leaves in silence and King Creon returns with his dead son Haemon in his arms. The messengers appro ach King Creon with grievous news that his wife Eurydice has taken her life. These examples prove that Seamus Heaney’s work is episodic because after one incident another incident approaches.The protagonist can be defined as the central character in a play or the person who the story is about and experiences the most changes. In Seamus Heaney’s play there are two possible protagonists Antigone and Ismene. Antigone can be considered a protagonist because the play revolves around her rebelling against the King and his resolution to not bury her brother’s body. Another protagonist is Ismene because during the opening scene she tells Antigone that she will not assist her in burying her brother.As the course of the play continues Ismene realizes what is right and defends her sister against King Creon by saying that she will die along with her sister. Ismene also tries to convince King Creon to not take her sisters life by asking him whether he would kill the bride of his son since Haemon is meant to marry Antigone. Ismene’s attitude changes from a noble citizen to that of a martyr. An antagonist can be defined as a person who is opposed to the protagonist or the goal of the protagonist. In Burial atThebes King Creon appears to be the antagonist because he is against burying or awarding any ceremonial rights to Antigone and Ismenes brother. As the play begins King Creon tells the elders of Thebes that anyone who awards a proper burial for Polyneices would be put to death. When King Creon finds about Antigone’s actions he declares that both sisters will be put to death. Antigone explains that she knew of his decree and she only answers to Zeus, the gods didn't lay down these laws for manipulation, and that she will endure the god's judgment for the burial.King Creon decides that he doesn’t want the blood of Antigone on his hand so he believes the best way to take her life is by burying her under rocks with food. These acts ma de by King Creon are evidence that he is the antagonist in the play Burial at Thebes. The play Burial at Thebes was intended to teach and educate its audience on societies and politics. Seamus Heaney displays a powerful King that doesn’t take advice from anyone. A few examples of King Creon not heeding to advice is first seen when his son Haemon tries to urge him to be open to both opinions.He dismisses his son calling him a woman slave. Even the elders’ question King Creon’s by stating that he should listen to his son’s request. Creon becomes irritated and questions the elders whether they should be taught by a young boy. King Creon was also approached by Teirasis and says, â€Å"The gods do not take the prayers or sacrifices of the Thebans, and the birds' cries are muffled because the birds' throats are glutted with the blood of Polyneices†. Teiresias explains the significance of taking counsel, and says that a man who makes a mistake and then co rrects it brings no shame on himself.King Creon once again does not heed to wise counsel and believes that just because he has authoritative power that he doesn’t require counsel. Seamus Heaney also exhibits bravery in his characters in which his audience members can learn from. For example, not only did Antigone represent bravery, but Haemon exemplified Bravery by standing up to his father. These acts of bravery appeared small at the beginning, but towards the end of the play they actually made a difference. All in all, these examples proved that Seamus Heaney’s work is educational and displayed politics.

The Bases Of Credit Risk In Banks Finance Essay - Free Essay Example

Sample details Pages: 9 Words: 2771 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Essay any type Did you like this example? According to European Central Bank, credit risk is defined as à ¢Ã¢â€š ¬Ã…“the risk that a counterparty will not settle the full value of an obligation à ¢Ã¢â€š ¬Ã¢â‚¬Å" neither when it becomes due, nor at any time thereafterà ¢Ã¢â€š ¬?; similarly, credit risk is the risk that a borrower will not meet its obligations according to agreed terms (Basel, Jul 1999). As Greuning, H.V and Bratanovic, S.B (2003) pointed out, bank failures mostly generated from credit risk due to the fact that more than 80% of the balance sheet of a bank commonly has the relation to this kind of risk. Therefore, a good management of credit risk is vital for the operation of a bank. Don’t waste time! Our writers will create an original "The Bases Of Credit Risk In Banks Finance Essay" essay for you Create order 3.1.2 Credit Risk Exposures in Banks According to Basel (Jul 1999), making loans is still the activity where credit risk rises from mostly. Additionally, along with financial innovation creating new financial instruments like: acceptances, interbank transactions, guarantees and acceptance (Basel, Jul 1999). Hence, this paper will discuss credit exposure of banks existing in these activities. Loan According to Gregoriou and Hoppe (2008), bank loans are categorised as commercial real estate (CRE), commercial and industrial (CI) loans and consumer loans. Frumkin (2005) stated that CI are loans made by commercial banks, representing loans outstanding; moreover, CI can be made from a few weeks to several years and this kind of loans are sources of capital for production. (Saunders and Cornett, 2006). Beside this, CRE are primarily mortgage loans; in terms of size, price and maturity, CRE is different to CI. Moreover, consumer loans made by lenders like banks and other financia l institutions create the only income is interest payment (Gregoriou and Hoppe, 2008). Undoubtedly, when making loans, the risk that banks concern mostly is credit risk. Due to many causes, bank borrowers may fail to repay their debts, possibly leading to bankruptcy (Gregoriou and Hoppe, 2008). Guarantees and Acceptances As the Basel Committee defined (1986), Guarantee is the commitment of a bank to help a third party complete its obligations if the third party cannot do it, while Acceptances is a bankà ¢Ã¢â€š ¬Ã¢â€ž ¢s obligation to pay on maturity the nominal value of a exchangeà ¢Ã¢â€š ¬Ã¢â€ž ¢s bill. Guarantees and Acceptances are considered as loans to ultimate borrowers; hence, they are also considerable sources of credit risk of banks (Basel, 1986). Interbank transaction According to Interbank Liability of US Department of Treasury, interbank transactions like swaps and foreign exchange contracts create exposure to banks that act as counterparties in such tra nsactions. This exposure may include settlement risk possibly coming from transactions related to the government securities or foreign exchange that a counterparty will fail to fulfil a payment as agreed terms. As a result, banks also need to pay attention to this kind of credit risk source. 3.2 PRINCIPLES OF CREDIT RISK MANAGEMENT IN BANKS 3.2.1 Purposes of Credit Risk Management As other businesses, the target of a bank is also maximising its profit; hence, the purpose of credit risk management in each bank is to diminish losses caused by credit risk but reach the maximum profit. This is the optimal combination between risk and profit. In other words, à ¢Ã¢â€š ¬Ã…“the intent of a banks risk management processes is to avoid having an unacceptable number of credits that go into insolvency, workout, restructuring, etc. and then to minimise the actual lossesà ¢Ã¢â€š ¬?  [1]  . According to Basel (Jul 1999), the purpose of credit risk management is to maximise a bankà ¢Ã¢â€š ¬Ã¢â€ž ¢s return by controling credit risk exposure within acceptable levels. 3.2.2 Principles of Credit risk Management Coping with credit risk management, each bank has its own strategies and policies; however, the Basel Committee on Banking Supervision establishes common standards on this issue. This paper will base on these criteria to depict crucial factors needed for a good framework credit management. According to Basel (Jul 1999), principles of credit risk management of banks should satisfy the following five criteria: Establishing an Appropriate Credit Risk Environment This standard requires each bank to set up its own conception, strategies and policies as well as organisations for credit risk management. Firstly, the board of directors should approve the acceptable level of the combination between credit risk and profitability. Then, managers- responsible for credit risk management should base on the approved strategies to carry out policies and implem ents for all activities and products of the bank. Operating under a Sound Credit Granting Process Having deep knowledge about their borrowers or counterparties as well as the structure of the credit and the ability of repayments is crucial for banks in determining the credit limit of each individual borrower or groups of counterparties. Thus in order to do that, banks need to build appropriate credit granting processes. The determining of the credit limit must been available for both circumstances of granting credit for new credit and extensions of existing credit. Maintaining an Appropriate Credit Administration, Measurement and Monitoring Process These processes must be applied for credit- bearing portfolios, monitoring the overall component of these portfolios. Additionally, banks should develop internal credit rating systems which need to fit the size, structure, activities of them. An internal credit rating system is an indicator of the risk in an individual credit in indentified by banks (Frenkel, Hommel, Dufey and Rudoff, 2005). This system should be applied at the beginning of the lending and updated regularly (Monetary Authority of Singapore, 2006). However, the Basel Committee make a suggestion that the framework of administration, measurement and monitoring of credit risk should estimate credit risk exposures in possible changes and stressful conditions. Ensuring Adequate Controls over Credit risk Banks need to establish a credit review system that board of directors need to be informed about reports and assessments of such credit review system regularly and directly. Banks must make sure that the credit risk exposures are within the approved level. Moreover, once weaknesses or problem credits appeared, bank should be ready to manage them. 3.3 CREDIT RISK MEASUREMENT Jickling (2010) argued that one of the causes resulting to the current financial crisis is the weakness of risk management systems including credit risk measurem ent. As Colquitt (2007) pointed out, credit risk measurement plays a vital role in the framework of credit risk management, becoming a major agenda at financial institutions over the past few years. There may be two main reasons leading to this role of credit risk measurement. Firstly, the increasingly complex financial risks cause large losses; hence, they need to be managed by quantifying and measuring the potential risk exposures. The second reason is that credit risk is intimately related to other risks like market and operational risks; as a result, to manage properly these integrated risks need a systematic process that can measure the loss exposures in all activities. The dissertation will analyse three methods for credit risk measurement of banks, including: credit risk rating, credit risk scoring and credit risk modelling. 3.3.1 Credit Risk Rating Credit rating systems are tools to assess creditworthiness, estimate default probability according to rating categories an d they are à ¢Ã¢â€š ¬Ã…“at the heart of credit risk management in that they provide a road map to entire credit processà ¢Ã¢â€š ¬? (Colquitt, 2007, p 318). Moreover, according to OCC (2001), credit risk rating systems may enhance safety and soundness, monitoring changes and trends in credit risk levels, helping banks reach optimal returns. Chen (2003) argued that there are three types of credit rating systems helping lenders rate creditworthiness of borrowers or counterparties, such as: bank internal rating systems, external rating agencies and external credit agencies. Bank Internal Rating Systems It is mentioned by Basel (Jan 2000) that internal ratings, based on quantitative and qualitative information, show an evaluation of the risk of loss due to the counterpartyà ¢Ã¢â€š ¬Ã¢â€ž ¢s default. Internal credit rating systems are used for many purposes like determining problem loans, analysing to support loan loss reserving, being an element of credit portfolio monitoring and management, capital allocation, etc (Federal Reserve Board, Division of Banking Supervision and Regulation, 1998). In other words, a robust internal credit rating system is crucial in credit risk management processes, contributing to banksà ¢Ã¢â€š ¬Ã¢â€ž ¢ safety, soundness and success. External Rating Agencies External rating agencies are provided by public credit rating companies like Moodys Investors Service, Standard Poors and Fitch. Like bank internal rating systems, these rating agencies offer consistent credit scores, information and credit risk indicators to banks about the prospective creditworthiness of borrowers or obligors. Along with bank internal ratings, lenders rely on assessments of rating agencies in the hope of avoiding bias estimations existing in internal credit rating systems (Colquitt, 2007). On the other hand, users of analyses from external rating agencies should consider some negative features of them. Firstly, there is a conflict of interest as a result of the fact that external rating agencies are paid by organisations or companies they assess rather than by the user of ratings information. Secondly, external rating agencies have been criticised because of being too slow to adjust ratings when breakdowns happen  [2]  . The case of Thai Bahtà ¢Ã¢â€š ¬Ã¢â€ž ¢s downgrade can serve a stark example of this argument. In July 1997, Thai baht plunged in value as the result of the Asian financial crisis; however, both Moodyà ¢Ã¢â€š ¬Ã¢â€ž ¢s and Standard Poorà ¢Ã¢â€š ¬Ã¢â€ž ¢s did not downgrade Thailandà ¢Ã¢â€š ¬Ã¢â€ž ¢s long- term until October 1997. External Credit Agencies According to Chen (2003), the third type of rating systems, external credit agencies is less well- known, providing information of borrowers in the score value form rather than rating information. In terms of the availability of borrowers- evaluating information, this type of rating system possibly outperform both of the bank internal ratin g systems and the external rating agencies because a large range of firms in different industries an regions are covered by external credit agencies (Chen, 2003). 3.3.3 Credit Scoring Systems Another tool for enhancing lenders in making decisions related to risk management is the credit scoring system. Banks use credit scoring as a method of estimating credit risk of loan applications. Analysing historical data related to borrowers and loan applicants such as the applicantà ¢Ã¢â€š ¬Ã¢â€ž ¢s monthly income, debt, financial assets, whether the applicant has defaulted or been delinquent on a loan, the credit scoring system creates a result used to classify loan applicants or borrowers (Mester, 1997) . Mester (1997, p2) also argued that à ¢Ã¢â€š ¬Ã…“a well-designed model should give a higher percentage of high scores to borrowers whose loans will perform well and a higher percentage of low scores to borrowers whose loans will not perform wellà ¢Ã¢â€š ¬?. As Thomas, Edelman and Crook (2002) pointed out, the main role of credit scoring system is to decide who will get credit and how much credit they should get; however, one of the long- term limitations of the credit scoring system is that there exist borrowers who can get credit from all lenders and those who cannot get from at least one lender. 3.3.4 Credit Risk Models As Basel (Apr 1999) mentioned, credit risk models play an increasingly vital role in many banksà ¢Ã¢â€š ¬Ã¢â€ž ¢ activities, including risk management and performance measurement. There are two main roles of credit risk models. The first role is to analyse single counterparty or transaction in the portfolio, estimating the creditworthiness of the counterparty related to the structure of the transaction. Another one is to assess the entire transactions and counterparties to decide whether the portfolio fits into the risk profile of the bank (Frenkeel, M., Hommel, U., Dufey, G., Rudoff, M., 2005). Moreover, these models offer bank s a mechanism for evaluating credit risk, contributing to banksà ¢Ã¢â€š ¬Ã¢â€ž ¢ credit risk management (Basel, Apr 1999). This paper will examine types of credit risk models according to the classification of Smithson (2003) as these models are commonly used and possibly well- known. Structural Models As Smithson (2003) stated that structural models originated from in the Merton model which analyses the volatility between assets and liabilities. In 1974, Merton suggested a model evaluating a company in default if its assetà ¢Ã¢â€š ¬Ã¢â€ž ¢s value is below that of its liabilities (Jackson, Nickell and Perraudin, 1999). In other words, à ¢Ã¢â€š ¬Ã…“ the probability of a firm going bankrupt depends crucially on the beginning period market of that firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets relative to its outside debt, as well as the volatility of the market value of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s assetsà ¢Ã¢â€š ¬? (Altman and Saunders, 1998, p5). Among structural models, there are tw o models used commonly by financial institutions including: Moodyà ¢Ã¢â€š ¬Ã¢â€ž ¢s KMV Portfolio Manager and JP Morganà ¢Ã¢â€š ¬Ã¢â€ž ¢s CreditMetrics (Smithson, 2003). KMV Portfolio Manager considers the value of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s asset as the stochastic variable while the Expected Default Frequency (EDFs) of each individual borrower that this model employs collected from Moodyà ¢Ã¢â€š ¬Ã¢â€ž ¢s KMV Credit Monitor or KMVà ¢Ã¢â€š ¬Ã¢â€ž ¢s Private Firm Model; then, basing on historical data, this model produces loss distribution (Smithson, 2003). Figure 3.1: Sources of Probability of Default for Portfolio Manager KMVà ¢Ã¢â€š ¬Ã¢â€ž ¢s Credit Monitor KMVà ¢Ã¢â€š ¬Ã¢â€ž ¢s Portfolio Manger KMVà ¢Ã¢â€š ¬Ã¢â€ž ¢s Private Firm Model EDFS EDFs Source: Smithson, 2003. Another model based on the Merton approach is JP Morganà ¢Ã¢â€š ¬Ã¢â€ž ¢s CreditMetrics which is a system for analysing credit risk in portfolios. According to JP Morgan (1997), this model use Monte Carlo simulation to measure VAR to estimate a portfolio loss. The measurement mechanism of CreditMetrics is showed at Figure 3.2. The probability of rating migration is determined by a transition matrix. Both CredtiMetrics and Portfolio Manager assume that firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s asset returns are produced by a set of common risk factors with factors related to the features of firms, industries and countries (Jackson, Nickell and Perraudin, 1999) Figure 3.2: CreditMetrics framework source: JP Morgan, 1997. Macrofactor Models According to Jackson, Nickell and Perraudin (1999), CreditPortfolioView is the most commonly used of macrofactor models, measuring only default risk and taking into account the relationship between macroeconomic conditions and default probabilities by using Monte Carlo simulation to assess default probabilities. Moreover, the time series of default rates per sector are the most crucial data input in using Mente Carlo simulation macroeconomics climates (Kern and Rudolph, 2001). This argument is illustrated in table 3.1. Table 3.1: CreditPortfolioView-data input source: Kern and Rudolph, 2001 Actuarial Models According to Smithson (2003), actuarial models indentify default rates and loss events and among this kind of model, Credit Risk+, proposed by Credit Suisse First Boston, is perhaps best known. In Credit Risk+, only credit risk from defaults is analysed and default rates are considered to be stochastic, not constant over time but possible fluctuate over the credit cycle. The data input of Credit Risk+ include default rates per country- industry segment and those for the individual credit exposures (Kern and Rudolph, 2001). à ¢Ã¢â€š ¬Ã…“Recovery rates are taken as constants or alternatively only exposures net of collateral are used for the calculation of losses. Then à ¢Ã¢â€š ¬Ã¢â‚¬Å" for a big portfolio of homogenous and independent loans with the same exposure and the same default rates à ¢Ã¢â€š ¬Ã¢â‚¬Å" the probability that exactly defaults will happen in the portfolio approximately follows the Poisson distributionà ¢ â‚ ¬? (Kern and Rudolph, 2001, p10). The measurement framework of Credit Risk+ is demonstrated in the Figure 3.3. Figure 3.3: Credit Risk+ framework source: Credit Suisse, 1997 3.4 CREDIT RISK MITIGATION TECHNIQUES In the credit risk management framework, credit risk mitigation techniques play a crucial role, applied throughout the risk management with the aim of avoiding and minimising losses. Along with the development of financial instruments, there are a handful of such techniques that are applied dependent on the size, business strategies of banks or national characteristics (Basel, Jan 2000a). This section will examine commonly- used credit risk mitigation approaches such as: collateral, credit limits, netting agreements and credit derivatives. Collateral It may be one of the most popular and basis methods of banks and financial institutions for reducing credit risk. When appearing the event of default, the ownership of properties of borrowers used as collateral in lending agreements will be given to banks; thanks to this, losses are offset partly through the sale of properties (OCC, 2001). However, as Horcher (2005) argued, in the circumstance of devalued collateral assets, counterparties would be required to provide additional collateral. Credit limits According to Horche (2005), credit limits are a useful mitigation approach in minimising exposure to sectors, regions or sovereign governments by granting maximum contract size or maximum term limit to these categories. As the result, banks need to have deep knowledge and understanding about their customers in order to increase the effectiveness of this method. Netting agreements Netting agreements are used to net exchanged amounts between two counterparties. This method, specially applied commonly for interbank transactions when banks are borrowers and lenders of each other, reduces interbank credit exposure by shifting credit risk to bank creditors who do not claim in the netting agreements (Emmons, 1995). Credit derivatives As Horcher (2005) defined, Credit derivatives are contractual agreements based on credit perfo rmance related to predetermined events such as default, insolvency or bankruptcy and non fulfilment of loan obligations. This approach is used through the transfer agreed loanà ¢Ã¢â€š ¬Ã¢â€ž ¢s credit risk from the protection purchaser- the creditor bank to the protection seller, as a result they have the ability to support participants to offset risk arising from their core businesses (Horcher, 2005).