Modeling Bank Senior Unsecured Ratings: A Reasoned Structured Approach to Bank Credit Assessment

Spyros Pagratis and Marco Stringa
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Spyros Pagratis: Athens University of Economics and Business

International Journal of Central Banking, 2009, vol. 5, issue 2, 1-39

Abstract: This paper studies the impact of bank-specific financial indicators and macroeconomic variables on bank senior unsecured ratings by Moody’s. Controlling for bank financial characteristics, we find significant evidence of procyclicality in bank ratings stemming from lagged interaction effects between the real output gap and the credit gap. In particular, macroeconomic slowdowns that follow credit booms tend to imply lower ratings. Similarly, when credit expansion above a trend is followed by strong economic performance, bank ratings tend to increase. Bank ratings also appear to correlate positively with the slope of the yield curve and tend to increase with sovereign ratings, market share of lending, and bank size. Given the ongoing debate on the importance, timeliness, and information content of credit ratings in general - and those assigned to banks in particular - the paper addresses a topic that is of great importance to central banks, regulators, and risk managers.

JEL-codes: C25 G21 G24 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (22)

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