Moody’s brings bail-in to bank ratings

By Owen Sanderson
10 Sep 2014

Moody’s has proposed a new way to rate bank debt which takes bail-in into account. It has added a new term — “loss given failure” — into the credit analysis, to reflect the likely capital structure and waterfall of payments in a bank resolution.

The Moody’s process starts with an assessment of the bank’s financial metrics to see how likely it is to fail, then adds in support from other institutions in the group. The “loss given failure” metric modifies this figure to reflect where the instrument sits in the capital stack, ...

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