The Ivie has coordinated working paper number 12 of 2012, published by the BBVA Foundation, "Impact of the Subprime Crisis on Bank Ratings: The Effect of the Hardening of Rating Policies and Worsening of Solvency". This study, along with other papers, is available on the BBVA Foundation website.
Working paper no. 12/2012: Impact of the Subprime Crisis on Bank Ratings: The Effect of the Hardening of Rating Policies and Worsening of Solvency
This working paper studies the impact of the subprime crisis on the ratings issued by the rating agencies in evaluating the solvency of banks. After ascertaining a significant worsening of ratings after the crisis, the paper hypothesizes the possibility that this worsening is not due exclusively to deterioration in the banks' credit quality, but also to a change in the behavior of the rating agencies. The study designs a methodology to separate the observed change in ratings into two multiplicative components: one associated with the deterioration of the banks' solvency itself and another associated with the change in the agencies' valuation criteria. The methodology is applied to the Spanish Banking System during the period 2000-2009. The results obtained show that the observed rating cuts (13%) are explained (65%) by the deterioration in the solvency of the banks, but also (35%) by the hardening of the valuation criteria adopted by the agencies. This shows the procyclical character of ratings.
This working paper was carried out by José Manuel Pastor (Ivie and Universitat de València), Juan Fernández de Guevara (Ivie and UV) and Carlos Salvador (UV).
Working paper no. 12/2012: Impact of the Subprime Crisis on Bank Ratings: The Effect of the Hardening of Rating Policies and Worsening of Solvency
This working paper studies the impact of the subprime crisis on the ratings issued by the rating agencies in evaluating the solvency of banks. After ascertaining a significant worsening of ratings after the crisis, the paper hypothesizes the possibility that this worsening is not due exclusively to deterioration in the banks' credit quality, but also to a change in the behavior of the rating agencies. The study designs a methodology to separate the observed change in ratings into two multiplicative components: one associated with the deterioration of the banks' solvency itself and another associated with the change in the agencies' valuation criteria. The methodology is applied to the Spanish Banking System during the period 2000-2009. The results obtained show that the observed rating cuts (13%) are explained (65%) by the deterioration in the solvency of the banks, but also (35%) by the hardening of the valuation criteria adopted by the agencies. This shows the procyclical character of ratings.This working paper was carried out by José Manuel Pastor (Ivie and Universitat de València), Juan Fernández de Guevara (Ivie and UV) and Carlos Salvador (UV).