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Bank Standalone Credit Ratings

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  • Michael R. King

    (Gustavson School of Business, University of Victoria)

  • Steven Ongena

    (University of Zurich, Swiss Finance Institute, KU Leuven, and CEPR)

  • Nikola Tarashev

    (Bank for International Settlements)

Abstract

Standalone ratings measure a bank's intrinsic financial strength but-unlike all-in ratings-do not incorporate potential sovereign or parent-bank support. On July 20, 2011, Fitch switched from a 9-point to a 21-point scale for its standalone ratings but did not alter its all-in ratings. We investigate if the stock market reacted to this refinement of public information about bank fundamentals. We find that shareholders rewarded (penalized) banks that received positive (negative) rating surprises. We also find that Fitch used the refinement to inflate standalone ratings, in particular for large banks, banks with low 9-point standalone ratings, and banks headquartered outside North America.

Suggested Citation

  • Michael R. King & Steven Ongena & Nikola Tarashev, 2020. "Bank Standalone Credit Ratings," International Journal of Central Banking, International Journal of Central Banking, vol. 16(4), pages 101-144, September.
    • Handle: RePEc:ijc:ijcjou:y:2020:q:3:a:3
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    Cited by:

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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