What Drives Banking Industry Ratings? An Empirical Analysis

Claudio Calì, Barbara Marchitto and Andrea Resti

This article was first published as a chapter in Managing Systemic Exposure, by Risk Books.

The 2007–09 financial crisis has prompted renewed interest by national authorities and researchers on macroprudential models that assess the quality of financial systems as a whole. The manifold inter-connections among lenders and between them and other financial institutions calls for an integrated analysis of national banking systems that goes beyond the assessment of individual entities on a stand-alone basis. This has led rating agencies to develop or revamp a special class of ratings that evaluate the risk of banking industries as a whole, rather than that of individual banks.¹¹This class of ratings was first issued by Fitch Ratings in 2005 and grades were made more granular in 2012; Standard and Poor’s began issuing industry ratings in 2006, but criteria were thoroughly re-designed in 2011; in 2007, Moody’s started aggregating bank financial stability ratings countrywide to provide an indicator of the vulnerability of national banking systems. These banking industry ratings (BIRs) prove of special interest to institutions doing business with systemically important banks (SIBs), given