In the US, while the ratings system for larger companies and the scoring of small business/consumer credit is well-established, companies in between these two extremes continue to fall into a statistical no-man ’ s land. Credit scoring for such “ middle market ” companies relies on how an individual bank interprets various financial ratios derived from a borrower ’ s financial statements, and other data such as industry sector. W hile the approaches are increasingly sophisticated, they are not standardized and are difficult to compare and back-test against data. T he Credit Cycle we identified earlier looks set to change this. B anks are recognizing that without standard ways to assess the credit risk in their portfolios, it will be difficult to convince both regulators and credit investors that loan and other credit-linked middle market portfolios represent a specific level of risk. M eanwhile, major credit rating companies have begun to promote modeling approaches for middle market credits that weight the various financial ratios in a manner that is standard and which can be more easily tested against the limited historical data that is available. P ublic credit ratings are not the only way to assess the credit risk posed by larger companies. T he most commonly used quantitative method is based on principles expounded by the well- known academic and researcher Robert Merton. T hese “ Merton models ” consider the company ’ s equity as a call option on the value of the firm ’ s assets, in which the strike price of the option is related to the liabilities of the firm. T he equity value and its volatility, together with the level of liabilities , provide information that allows the credit modeler to estimate the default probability of the quoted company. T raditionally, once credits have been measured or scored, a bank would decide to accept or reject the implied credit risk of the transaction. B ut the new credit risk modeling, pricing and transfer tools mean that banks can now actively manage their loan portfolios to ensure an efficient risk/reward ratio and sufficient diversification of loans----much as they would manage an investment portfolio.