Moody’s Investors Service may change debt ratings affecting more than 1,000 banks as a result of its adoption of a new methodology that reflects regulatory changes since the financial crisis.

The rating changes would include upgrading 214 senior unsecured debt and issuer ratings for banks that now have a large enough cushion to protect senior bondholders. Ratings for Bank of America, Citigroup, Goldman Sachs Group and Morgan Stanley are among U.S. banks under review for an upgrade, Moody’s said.

Some 212 senior unsecured debt and issuer ratings may be downgraded where senior creditors are not sufficiently protected from losses. Moody’s expects the majority of the reviews to be concluded by the end of the second quarter.

The ratings service published its new methodology on Monday in response to the insights gained from the crisis and what it called “the fundamental shift in the banking industry and its regulation.” Several new elements of the methodology are designed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution.

“Our fundamental approach to bank ratings has not changed dramatically, but we have introduced a number of new tools to enhance our analysis, which has resulted in these rating reviews,” Greg Bauer, Moody’s co-head of global banking, said in a news release.

“These reviews are prompted by our new methodology, which we are confident will enable us to appropriately reflect the rapidly evolving global banking environment as it continues to develop,” he added.

Included in the elements that Moody’s now considers when it assigns a bank’s baseline credit assessment (BCA) is a Macro Profile, which, Moody’s said, “explicitly captures banking system-wide pressures that have been shown to be predictive of a bank’s propensity to fail.”

“The revised approach to establishing BCAs helps to more accurately predict bank failures,” Moody’s explained.

In addition, a new Loss Given Failure framework allows Moody’s to assess how different creditor classes are likely to be affected when a bank enters resolution based on the relevant resolution policy and balance sheet structure.

, , , , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *