Moody's guidance on implications of the global financial crisis on bank ratings

February 25, 2009: In a new report, Moody's Investors Service provides additional guidance on the meaning of Moody's bank ratings and how its ratings methodology operates in the current environment, which is characterized by continued scarcity of private liquidity and capital resources and a high degree of government support for the banking system.

"In our opinion, despite the extended crisis period, senior debt and deposit ratings for most major banks in advanced economies remain investment grade, due to the high level of government support," says Managing Director Gregory Bauer, the report's author. "However," he states, "bank financial strength ratings are more likely to experience increased volatility -- and initially, downgrades." Bank financial strength ratings represent Moody's opinion of a bank's intrinsic safety and soundness and, as such, they exclude the potential benefit of external support that has not already been committed.

"In establishing our ratings during this tumultuous period, we have applied, and will continue to apply, our existing methodologies to provide a rank ordering of bank credit risks. However, in the context of the sobering realization that the market turmoil is deeper and more enduring than was anticipated only months ago -- and because of the increased dependence of banks on government support -- we have determined that some refinements of the weights and relative importance attached to certain rating factors within our methodologies was warranted," says Mr. Bauer. "Today's comment is part of Moody's process of calibrating our bank ratings, putting more emphasis on support and on specific drivers of banks' intrinsic safety and soundness -- such as capital adequacy and core earnings -- that best reflect the current realities of this enduring credit crisis," says Mr. Bauer.



"In addition to this announcement," Mr. Bauer says, "we will continue to refine the analysis that underlies our bank ratings to reflect the changing role of government support in the financial crisis."

Over the coming weeks, Moody's will be commenting on two additional main topics in respect to bank ratings: (i) hybrid capital instruments and the potential impact if systemic support is not available for these instruments and (ii) an update relating to the capacity and willingness of a sovereign to support banks in local or foreign currency terms. Regarding the first initiative, Moody's published a Special Comment in December 2008 and now expects an update on potential rating implications on bank hybrid capital in the second quarter.

The second methodology review concerns systemic support assumptions for banks in developing and emerging economies, where the sovereign ratings remain below the highest rating categories. Moody's expects to publish an initial comment on support assumptions over the next few weeks.

(This is press release of Moody's Investors Service)

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