กรุงเทพฯ--7 เม.ย.--Moody's
Moody's received a substantial response to its October 2005 request for comment concerning a proposal to use
joint-default analysis (JDA) to more formally incorporate national government (i.e. systemic) support into its ratings for banks and other deposit-taking institutions. The rating agency today released a summary of the comments received, as well as a detailed review of its response.
Moody's said that it has decided to adopt a more refined, multistep JDA proposal than the original. A likely timetable for implementation is also included.
In its update report, Moody's says that most of the feedback received from market participants concerning the application of JDA to bank ratings was positive. According to David Fanger, Moody's chief credit officer for financial ratings, "commentators agreed that systemic support is an important factor in bank credit risk, and that we should strive to be transparent and systematic in the way we factor systemic support into our bank ratings".
"However," Fanger adds, "a number of commentators also expressed concern that, by applying the JDA framework only to systemic support -- and not to other forms of external support -- we might end up with inconsistent ratings."
Based upon the responses it received, Moody's decided to refine its original proposal. The rating agency now plans to apply the JDA framework to all major forms of external support for banks, not just systemic support.
Consistent with its existing rating methodologies, the agency identified four sources of potential external support for banks:
(1) parental support (from a parent operating company or family group),
(2) support from a cooperative or mutualist group,
(3) support from a regional or local government, and
(4) systemic (i.e. national government and/or central bank) support.
"Rather than attempt to model multiple supporters with potentially different support probabilities and different default correlations simultaneously," Fanger explains, "we have designed a JDA framework that evaluates support in a sequential process -- or 'building block' approach." The intention is to replicate the likely sequence in which external support for a bank would be forthcoming.
Each stage of support raises the "underlying" rating that is used as an input into the next stage of the framework.
Timetable for Implementation "Because the revised framework involves greater complexity as well as the publication of several new or updated rating methodologies still being developed," Fanger says, "we will be unable to complete the
implementation of JDA for banks during the first half of 2006, as originally planned."
Although such plans are always subject to change, the rating agency's current plan for implementation is as follows.
Spring 2006 -- Publish requests for comment on (1) a proposed methodology for rating cooperative or mutualist groups and on (2) an updated methodology for bank financial strength ratings (BFSRs).
Summer 2006 -- Publish and implement final rating methodologies for (1) cooperative or mutualist groups and for (2) bank financial strength ratings.
Fall 2006 -- Publish and implement final methodology incorporating JDA into Moody's bank ratings.
The report is titled "Update to Proposal to Incorporate Joint-Default
Analysis Into Moody's Bank Rating Methodology."
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New York
David Fanger
Chief Credit Officer
Financial Institutions Group
Moody's Investors Service
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