
Editor's letter

It's been a bad month for Moody's. First the rating agency, which was once famously described as one of two superpowers in the world today (along with the US), upset bankers by backtracking on planned changes to its hybrids methodology. But that turned out to be a minor tremor compared with the Richter Scale 10 earthquake unleashed by its new bank ratings methodology. The agency unveiled its new analysis, which takes into account systemic support for banks - for example from parent groups or governments - on February 23. Up to 200 banks are expected to be upgraded by the time the methodology is fully rolled out, including Icelandic banks Kaupthing, Landsbanki and Glitnir, which won multiple notch upgrades to become triple-As.
Moody's could hardly have expected the fury that would follow. Analysts, usually restricted in the outrage they can vent in arid credit research reports, seized the opportunity to slam the agency. Royal Bank of Scotland said the move brought "unspeakable horror"; Merrill Lynch described it as "perverse"; and CreditSights, in a report entitled Moody's makes Aaas of itself, said it would stop using Moody's bank ratings altogether.
Investors need ratings stability, and there are obvious instances in which the new methodology seems difficult to justify. But Moody's is not in the habit of creating new rating methodologies for its own entertainment. If the agency believes default probability for banks is currently overestimated, that should at least be considered as a possibility. We'll find out whether they're right the next time there is a bank failure. In the meantime, the final judgment on Moody's decision will be delivered by the market: if spreads fail to narrow permanently on entities that have benefited from massive upgrades, then Moody's really will have been judged to have lost the plot.
- Nikki Marmery, Editor.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC expected to protect CRT in conflicts of interest rule
Decision could come as early as today; high hopes for credit risk transfer exemption
FRTB managers face hard facts about risk factors
There are ways to reduce the capital charges caused by NMRFs, but they come at a price
SEC official defends delayed dealer registration rule
Regulator says market should be treated like equities, but PTFs warn it will harm market liquidity
New UK clearing rules: same as the old rules?
Clearing experts doubt UK regulation can diverge significantly from Emir and global standards
SEC to delay US Treasury clearing mandate, dealer rule
A final vote on proposed US Treasury market reforms is now expected in early 2024
BoE warns against use of stablecoins in banking
Tokenised payment systems pose compliance and systemic risks, regulator says
Industry unsure of SEC’s new short-selling transparency rule
Requirement aims to provide sufficient transparency while protecting traders from a GameStop-style backlash
EC to adopt NII outlier test within ‘weeks’
New IRRBB rules could come into force in early 2024; industry hoping EBA draft is softened