Models for Moody’s bank ratings

Peresetsky, A. A. and Karminsky, A. M. (2011): Models for Moody’s bank ratings. Published in: Frontiers in Finance and Economics , Vol. 1, No. 8 (2011): pp. 88-110.

Abstract

The paper presents an econometric study of the two bank ratings assigned by Moody's Investors Service. According to Moody’s methodology, foreign-currency long-term deposit ratings are assigned on the basis of Bank Finan-cial Strength Ratings (BFSR), taking into account “external bank support factors” (joint-default analysis, JDA). Models for the (unobserved) external support are presented, and we find that models based solely on public infor-mation can approximate the ratings reasonably well. It appears that the ob-served rating degradation can be explained by the growth of the banking sys-tem as a whole. Moody’s has a special approach for banks in developing countries in general and for Russia in particular. The models help reveal the factors that are important for external bank support.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks, Ratings, Rating model, Risk evaluation, Early Warning System
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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