Rating Performance and Bank Business Models: Is There a Change with the 2007–2009 Crisis?

Abstract

We investigate the relationship between a bank’s rating and its business model and hypothesize that relationship changed through the crisis. We use bank ratings by Fitch, Moody’s and S&P’s from 2006 to 2009 and proxy the business model via an index given by a banks’ traditional income share in total income. In a sample of 241 listed banks from 39 countries, controlling for sovereign ratings and other bank characteristics, we find that banks with higher values of the index had: (1) similar ratings to other banks until 2007; (2) better rating performance through 2008–2009. The evidence supports our hypothesis

Divulgence of Additional Capital Requirements in the EU Banking Union

“…In the first specification the logarithm of total assets is used as a measure of the bank size, return on average assets stands for bank profitability, while the bank credibility is given by bank rating. As usually done in financial econometrics ratings have been transformed to numeric variable increasing with rating (Cantor and Packer 1996;D'Apice et al 2016). In our case the value of 1 corresponds to Moody's C, while 21 stands for Moody's Aaa.…”

Bank Credit Risk Rating Process: Is There a Change With the 2007-09 Crisis?

“…The scientific literature that we are going to present focuses on the comparison over time of the BCRR methodologies. The period considered is mainly before and after the subprime crisis (Packer & Tarashev, 2011;Van Laere, Vantieghem, & Baesens, 2012;Salvador, Pastor, & De Guevara, 2014;D"Apice, Ferri, & Lacitignola, 2016;Salvador, De Guevara, & Pastor, 2018). Damak & Chichti (2017) did a comparison before the Asian crisis, between the two financial crises and after the subprime crisis.…”

“…And in the other hand, the comparison over time based on econometric studies related to the determinants of theirs practiced methodologies, to the investigation of the relationship between a bank"s rating and its business model and/or to the analyze of "all-in" rating adjustments and migrations and of the CRAs behaviors (Van Laere et al, 2012;Salvador et al, 2014Salvador et al, , 2018Salvador et al, , 2020D"Apice et al, 2016;Chodnicka-Jaworska, 2018). They show a structural change in the rating models and behaviors and/or that the rating decline might have been caused partially by the worsening asset position and partially by the tightening of rating policies.…”