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- —, 2011a, Perspectives on Bank Credit Ratings in a Changing Environment, New York NY, Report March 7.
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- —, 2011b, Viability Ratings: An Introductory Primer, New York NY, Report July 20.
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- —, 2013, "The 2007–2009 Financial Crisis and Bank Opaqueness," Journal of Financial Intermediation 22, 55-84.
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- —, 2015, "Does the Market Understand Rating Shopping? Predicting MBS Losses with Initial Yields," Review of Financial Studies.
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- Table III: Descriptive Statistics 9-Point Standalone Rating A A/B B B/C C C/D D D/E E Equivalent Numeric Point 19 17 15.5 13.5 11.5 9.5 7 5 1.5 Number of Banks aaa 20 aa+ 19 aa 18 5 1 6 aa- 17 2 21 1 24 a+ 16 7 3 10 a 15 7 18 25 a- 14 3 29 1 33 bbb+ 13 4 18 22 bbb 12 8 23 31 bbb- 11 13 16 29 bb+ 10 7 7 bb 9 10 2 12 bb- 8 2 2 b+ 7 7 1 8 b 6 1 1 b- 5 ccc+ 4 ccc 3 2 2 ccc- 2 cc 1 c 0 Number of Banks 7 39 63 55 33 12 1 2 212 Total Number of Banks Legend The mapping from the 9- to 21-Point Standalone Rating that was communicated by Fitch XY The number of individual banks that transitioned This table shows the 9-Point Standalone Rating ("Individual Rating") on the horizontal axis and and 21-Point Standalone Rating ("Viability Rating") on the vertical axis. The gray boxes show the mapping from the 9- to 21-Point Standalone Rating that was communicated by Fitch prior to the transition, and for each of the 212 individual banks on the announcement on July 20, 2011.
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Tang, T. T., 2009, "Information Asymmetry and Firms’ Credit Market Access: Evidence from Moody's Credit Rating Format Refinement," Journal of Financial Economics 93, 325-351.
- The March 2011 report explicitly clarified that a bank’s all-in rating is the higher of the 21-point standalone rating and the Support Rating Floor. While Fitch claimed their methodology for all-in ratings had “long captured both of these fundamental driversâ€, the relationship between standalone ratings and external support had not been transparent. The press release was explicit that the migration from the legacy 9-point standalone ratings to the new 21-point standalone ratings did not equate to a change in Fitch's credit opinion and was not a criteria change.
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- The Support Rating Floor is itself based on a 5-point Support Rating, where a 1 indicates “an extremely high probability of extraordinary support†and a 5 indicates “external support, although possible, cannot be relied on†(Fitch 2011a). Even though all banks receive a 5-point Support Rating, Fitch does not publish a 21-point Support Rating Floor for all banks. In these cases where the Support Rating is 1 to 4, Fitch provides a minimum 21-point Support Rating Floor. But when the 5-point Support Rating is equal to 5, there is “no floor†on the 21-point Support Rating Floor. It is not clear that market participants understood how to interpret this framework when evaluating extraordinary support for banks.
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- Time (if available) 05:00 EST 05:00 EST Date August 16, 2010 March 1, 2011 March 7, 2011 July 20, 2011 Calendar Time Fitch Action Mapping from 9-point standalone ratings to the 21-point scale Signal of intention to modify the ratings scale for bank standalone ti Publication of new set of standalone ratings for 863 banks Fitch Report Global Financial Institutions Rating Criteria Perspectives on Bank Credit Ratings in a Changing Environment Viability Ratings: An Introductory Primer Event Dates-3 Years-1 Year-80 Days-10 Days Day 0 Event Study Time Our Study Fitch Ratings of Affected Banks Event Day Window [-2, +2] Resultant Tables Appendix D, Tables D.I to D.IX Tables I to IX Figure I: Timeline of the Change in Fitch’s Bank Standalone Ratings This figure provides a comprehensive timeline of Fitch actions and reports and of our study setup.
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- We evaluate the market reaction to the publication of the March 2011 report. We focus on those banks where the clarification of the relationship between the all-in rating, the Support Rating Floor, and the standalone rating gave market participants enough information to predict the expected 21-point standalone rating. Specifically, when a bank has both an all-in rating and a Support Rating Floor and the all-in rating is above the Support Rating Floor, then the expected 21-point standalone rating is expected to be the same as the all-in rating: D.2 If all-in rating > Support Rating Floor then Expected 21-point Standalone Rating = all-in rating (D.1) The March 2011 report highlighted that around three-quarters of the banks in Fitch’s rated universe had all-in ratings above the Support Rating Floor. For our sample of 212 banks, we find that 146 (or 69%) meet this criterion.
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