Bank Standalone Credit Ratings

74 Pages Posted: 2 Feb 2016

See all articles by Michael R. King

Michael R. King

Gustavson School Of Business

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

We study a unique experiment to examine the importance of rating agencies' private information for bank shareholders. On July 20, 2011, Fitch Ratings refined their bank standalone ratings, which measure intrinsic financial strength, from a 9-point to a 21-point scale. This refinement did not affect their all-in ratings, which combine assessments of intrinsic strength and extraordinary sovereign support and provide an estimate of banks' creditworthiness. Thus, the impact of the standalone rating refinement was cleanly limited to bank shareholders. We find evidence suggesting that the refinement resulted in higher than expected standalone ratings, but we find only weak evidence of ratings catering. We also find a positive relationship between stock price reactions and rating surprises, revealing that the rating refinement delivered useful information about the importance of bank characteristics for assessing intrinsic financial strength.

Keywords: banks, standalone credit ratings, ratings catering, stock market reaction

JEL Classification: G21, G14, G15

Suggested Citation

King, Michael Robert and Ongena, Steven R. G. and Tarashev, Nikola A., Bank Standalone Credit Ratings (February 1, 2016). BIS Working Paper No. 542, Available at SSRN: https://ssrn.com/abstract=2725958

Michael Robert King (Contact Author)

Gustavson School Of Business ( email )

University of Victoria
Business & Economics Building, Room 246
Victoria, British Columbia V8W 2Y2
Canada
250-721-6425 (Phone)

HOME PAGE: http://https://www.uvic.ca/gustavson/faculty/faculty/faculty/current/kingm.php

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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