BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 17/2008:
Models for Moody’s bank ratings
Anatoly Peresetsky ()
and Alexander Karminsky ()
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 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 reasonably well approximate the
ratings. It appears that the observed rating degradation can be explained
by growth of the banking system as a whole. Moody’s has a special approach
for banks in developing countries and Russia in particular. The models help
reveal the factors that are important for external bank support.
Keywords: banks; ratings; rating model; risk evaluation; early warning system; (follow links to similar papers)
JEL-Codes: G21; G32; (follow links to similar papers)
27 pages, November 21, 2008
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