Moody’s proposes changes to its Banks Methodology (EMEA/Americas)

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Moody’s Investors Service is seeking feedback by May 05, 2022 from market participants on proposed changes to its Banks Methodology. The key proposed revision is to introduce new ratings that exclude government support (XG ratings) in Moody’s methodology for banks.

What are XG Ratings?

XG ratings would represent our opinions of the credit risk of the financial obligations of a bank or a bank-related issuer, excluding consideration of the potential benefit of implicit and extraordinary government support that is intended to avoid or mitigate the default or impairment of that entity’s financial obligations.

WHY ARE XG RATINGS BEING INTRODUCED?

Moody’s proposes to incorporate XG ratings into the methodology so that banks will be able to use ratings that explicitly exclude government support assumptions to compute risk-based capital requirements for their credit risk exposure to other banks. We expect more bank regulators to adopt rules requiring the use of credit ratings that exclude government support assumptions in these calculations for some exposure types. National regulators may follow or adapt the Basel III revised standardized approach for credit risk (Basel III Framework), which will start to take effect in January 2023.

For more details on the proposed changes and to provide feedback, please see Moody's Request for Comment.

  • Speakers keyboard_arrow_down
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    Sean Marion Managing Director, Structured Finance Moody’s Ratings Bio
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    Fadi Massih Vice President - Senior Analyst, North America Banks and Securities Firms Moody's Investors Service Bio
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    Christos Theofilou Vice President - Senior Analyst Moody's Investors Service Bio