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Models for Moody’s Bank Ratings

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  • Anatoly Peresetsky, Alexander Karminsky

    ()
    (Higher School of Economics, Moscow)

Abstract

The paper presents an econometric study of the two bank ratings assigned by Moody's Investors Service. According to Moody’s methodology, foreigncurrency long-term deposit ratings are assigned on the basis of Bank Financial 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 information can approximate the ratings reasonably well. It appears that the observed rating degradation can be explained by the growth of the banking system 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.

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Bibliographic Info

Article provided by SKEMA Business School in its journal Frontiers in Finance and Economics.

Volume (Year): 8 (2011)
Issue (Month): 1 (April)
Pages: 88-110

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Handle: RePEc:ffe:journl:v:8:y:2011:i:1:p:88-110

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Related research

Keywords: Banks; Ratings; Rating model; Risk evaluation; Early Warning System;

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References

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  1. repec:fth:pennfi:67 is not listed on IDEAS
  2. Soest, A.H.O. van & Peresetsky, A. & Karminsky, A.M., 2003. "An Analysis of Ratings of Russian Banks," Discussion Paper 2003-85, Tilburg University, Center for Economic Research.
  3. Amato, Jeffery D. & Furfine, Craig H., 2004. "Are credit ratings procyclical?," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2641-2677, November.
  4. Altman, Edward I. & Rijken, Herbert A., 2004. "How rating agencies achieve rating stability," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2679-2714, November.
  5. Marshall E. Blume & Felix Lim & A. Craig Mackinlay, 1998. "The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?," Journal of Finance, American Finance Association, vol. 53(4), pages 1389-1413, 08.
  6. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers 3-98, Wharton School Rodney L. White Center for Financial Research.
  7. Marshall E. Blume & Felix Lim & A. Craig MacKinlay, . "The Declining Credit Quality of US Corporate Debt: Myth or Reality?," Rodney L. White Center for Financial Research Working Papers 03-98, Wharton School Rodney L. White Center for Financial Research.
  8. Kaplan, Robert S & Urwitz, Gabriel, 1979. "Statistical Models of Bond Ratings: A Methodological Inquiry," The Journal of Business, University of Chicago Press, vol. 52(2), pages 231-61, April.
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Cited by:
  1. Petr Gurný & Martin Gurný, 2013. "Comparison of Credit Scoring Models on Probability of Default Estimation for Us Banks," Prague Economic Papers, University of Economics, Prague, vol. 2013(2), pages 163-181.
  2. Peresetsky, A. A., 2011. "What factors drive the Russian banks license withdrawal," MPRA Paper 41507, University Library of Munich, Germany.
  3. Karminsky, A. & Sosyurko, V., 2011. "Comparison of Bank Credit Ratings for Various Agencies," Journal of the New Economic Association, New Economic Association, issue 12, pages 102-123.
  4. Fidrmuc, Jarko & Süß, Philipp Johann, 2009. "The Outbreak of the Russian Banking Crisis," Discussion Papers in Economics 10996, University of Munich, Department of Economics.

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