The Role of Ratings in Financial Sector Stability Assessment

Petra Davidová and Renata Opravilová

Chapter Thematic Article 1 in CNB Financial Stability Report 2007, 2008, pp 65-75 from Czech National Bank, Research and Statistics Department

Abstract: This article discusses the ratings of financial market participants as one of the indicators of financial stability. Particular attention is paid to the sector of banks and insurance corporations in the Czech Republic. Besides discussing the ratings of individual financial institutions, the article explores aggregate ratings. For the banking sector, Fitch's Bank Systemic Risk Matrix is used as an aggregate rating for assessing a country's financial stability. For the insurance sector, the article presents for the first time the results of a newly constructed aggregate rating for insurers in the Czech Republic, which performs an analogous role to the matrix mentioned above. The analyses conducted in the article confirm that the banking and insurance sectors are showing satisfactory and steadily improving performance from the ratings perspective, in line with the conclusions of previous analyses of a different type. An analysis of the correlations of rating types and of the correlations between the ratings of banks and those of their owners demonstrated that the individual types of ratings of the various agencies are not fully interchangeable and that there is a positive correlation between the average long-term ratings of banks and those of their owners.

Date: 2008
ISBN: 978-80-87225-03-5
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