Moody's plans to boost bank rating methods

[SINGAPORE] Moody's Investors Service is proposing revisions to its Bank Rating Methodology to reflect the insights gained from the global financial crisis and the fundamental shift seen in the banking industry and its regulations.

One of the key changes being proposed is the inclusion of a "Loss Given Failure" analysis. This would provide a superior framework for determining how each type of creditor is likely to be affected when a bank needs to be "resolved", and would explicitly incorporate the benefit each creditor class derives from the amount of debt subordinate to it and which thus protects it from loss, said Moody's on Tuesday.

For banks more likely to be resolved through bailout, bankruptcy or ad-hoc resolution, Moody's said it would preserve its existing notching practices based on the type of instrument.