Moody’s overhauls ratings process

Lessons learned in the financial crisis have prompted rating agency Moody’s to overhaul the way it assesses banks – but most of the banks and debt it covers will have the same credit ratings after the review as before.

Many banks who encountered problems in the financial crisis had previously been given glowing ratings, and countries across the globe have been looking at the way ratings agencies work and how much they’re relied upon.

Moody’s said yesterday it had devised a new ratings methodology giving a central role to the “resolution regimes” which various countries created in the aftermath of the 2007-2009 financial crisis to pave the way for the orderly wind-down of banks.

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The way resolution regimes work will have a greater impact on the way bonds and deposits are rated, while the new methodology will also pay more attention to the “big picture” economic scenarios of countries.

“The proposed changes to the bank methodology are fairly fundamental,” said Frederic Drevon, managing director global banking at Moody’s, adding they would likely be finalised at the start of 2015 after industry consultation.

Drevon said it was impossible to say if the new methodology would have led to a different outcome through the financial crisis.

“The development of the methodology comes on the back of lessons learned from the financial crisis,” Drevon said.