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The adjustment of bank ratings in the financial crisis: International evidence

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  • Salvador, Carlos
  • Fernández de Guevara, Juan
  • Pastor, José Manuel

Abstract

This paper analyses the adjustment of bank ratings which occurred in the United States, some European countries and Japan as a result of the financial crisis. We use a methodology which allows us to decompose the observed change in the rating into an effect associated with the change in agency rating policies (understood in a broad sense) and into another effect associated with the situation of bank assets. The results obtained show that with the crisis there was a generalised fall in the ratings, caused by both a worsening of the bank asset situation and the hardening of rating policies. Specifically, we find that 39.95% and 19.25% of the fall in ratings in the United States and European countries are due to a hardening of rating policies in Fitch and Standard and Poor’s, respectively. Although the relevance of the change in the rating policy is lower in Moody’s (15.83%), which suggests that has a less procyclical behaviour, this agency adjust their rating to a greater extent (15.94%) than Fitch (8.75%) and Standard and Poor’s (8.17%) when the rating action is taken.

Suggested Citation

  • Salvador, Carlos & Fernández de Guevara, Juan & Pastor, José Manuel, 2018. "The adjustment of bank ratings in the financial crisis: International evidence," The North American Journal of Economics and Finance, Elsevier, vol. 44(C), pages 289-313.
  • Handle: RePEc:eee:ecofin:v:44:y:2018:i:c:p:289-313
    DOI: 10.1016/j.najef.2018.01.001
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    More about this item

    Keywords

    Rating; Financial crisis; Asset situation; Rating criteria; Too-Big-to-Fail; Through-The-Cycle strategy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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