Summary
This report details Moody’s proposal to revise our rating methodology for assigning Bank Financial Strength Ratings
(BFSRs) globally.1 This revision does not change the main factors that Moody’s considers in rating banks. However,
the revised approach provides a single, global methodology instead of separate methodologies for mature and developing
markets. It also establishes specific ranges for each factor that relate to different rating categories. The updated
methodology is intended to provide investors and issuers with a transparent set of guidelines allowing them to better
understand our rating process and how we reach our decisions.
To this end, we have developed a rating scorecard that uses a common set of globally available financial metrics
together with key qualitative factors that Moody’s analysts consider critical in evaluating a bank’s intrinsic financial
strength and specific weights for each factor. This scorecard will be used by Moody’s analysts as the first step in determining
BFSRs. It should also enable investors and issuers to independently estimate a BFSR for most banks within two
notches. This report describes the scorecard and discusses some of its limitations as well as some of the further adjustments
that Moody’s analysts may employ in assigning BFSRs.
The revised methodology is also intended to improve the consistency of Moody’s BFSRs. As previously
announced, Moody’s intends to incorporate joint-default analysis (JDA) into our assessment of external support for
banks later this year.2 We believe the updated BFSR methodology will help ensure that existing BFSRs are indeed
“pure” measures of stand-alone financial strength and do not include external support. This is important in order to
avoid double counting external support when we implement JDA for banks. We are requesting comments because we
believe that the implementation of this methodology could lead to changes in the BFSRs for a significant number of
banks, although we do not expect most of those to exceed 2 notches.
Readers should note that this methodology is not an exhaustive treatment of every factor considered by Moody’s
in assigning bank financial strength ratings, but it should enable our constituents to better understand how and why we
arrive at a BFSR. Moody’s welcomes comments or suggestions on this proposal from market participants. Comments
should be sent to cpc@moodys.com by September 29, 2006.