تنزل رتبه کانال های رتبه بندی مستقل بانکی و رتبه بندی سازمان ها در طول بحران بدهی اروپا

We investigate the rating channel for the transmission of changes in sovereign risk to the banking sector, analysing data from Moody's, S&P and Fitch before and during the European debt crisis. Sovereign rating downgrades and negative watch signals have strong effects on bank rating downgrades in the crisis period. The impact is stronger for multiple-notch sovereign rating downgrades, and more pronounced in PIIGS countries. Secondly, we investigate rating agencies' competition in the banking sector during the same periods, finding significant differences in rating policies across the agencies. S&P credit actions tend to be the more independent ones, while Moody's appears to be more cautious, although it is by far the most likely to assign multiple-notch downgrades. In the pre-crisis period, we find no evidence that bank rating actions are linked to sovereign rating signals (nor vice versa) nor to prior bank rating changes by a competing agency.

Credit ratings are heavily used in financial markets and regulation, and the recent European debt crisis triggered increased scrutiny of the relative performance of credit rating agencies (CRAs). Developed countries have long been accustomed with stable and high investment grade ratings. The fact that this debt crisis originated in European countries seriously challenges the previously common belief that their sovereign debts were relatively safe investments, with indebted countries, including Portugal, Italy, Ireland, Greece and Spain (PIIGS), causing widespread concerns in the global economy. The European debt crisis presented CRAs with a uniquely challenging period. In the context that credit ratings are inherently stable (see Löffler, 2004 and Cantor and Mann, 2007), CRAs faced pressures from various directions on the timing and severity of downgrade actions. Acting too slowly would diminish their credibility, given the contemporaneous views of market participants as reflected in the changes in bond yields and CDS prices. However, acting promptly drew the anger of politicians and other commentators since sovereign rating downgrades are somehow more publicly visible than credit market valuations, and therefore made the CRAs potentially vulnerable as scapegoats for deepening the crisis. A primary focus in this paper rests upon comparing the actions of different CRAs in response to the European crisis period. Two main research questions are addressed. Firstly, we provide detailed evidence on a rating channel through which sovereign risk was transmitted to the banking sector. We investigate the strength of links between sovereign and bank rating actions and ask whether these links differ across CRAs and/or across countries. Secondly, we focus on the banking sector and ask whether different CRAs applied systematically different rating policies in downgrading European banks during the crisis period. This aspect links to the question of whether the credibility of a CRA is enhanced in the eyes of market participants by prompt actions (or leadership) following any change in an issuer's creditworthiness. The positioning of the paper is firmly in the credit ratings literature and we explain the paper's niche relative to other themes in Section 2. In relation to our first research question, BIS (2011) provides a clear motivation by specifying four different channels through which changes in sovereign creditworthiness can affect bank funding costs and access: (i) banks' holdings of domestic and foreign sovereign debt; (ii) the use of sovereign securities as collateral to secure funding from central bank and market sources; (iii) explicit and implicit government guarantees; (iv) linkages between sovereign and bank ratings. BIS (2011) only offers brief and descriptive evidence on the fourth channel. Similarly, much of the recent literature (see Section 2) has paid attention to the first three channels but neglected this fourth channel. This paper therefore addresses a void in the literature by presenting a comprehensive analysis of the linkages between European sovereign and bank ratings before and during the debt crisis.1 In relation to the second research question, we motivate the analysis from a burgeoning recent literature on issues of industrial structure and competition in the rating industry (see Section 2). Because much of this literature is driven by the US sub-prime crisis, there are two dominant themes of ratings inflation and competition among CRAs. The problem of ratings inflation is commonly set in the context of structured finance products prior to the sub-prime crisis. In contrast, the context of the sovereign debt crisis may make this issue less relevant because policy concerns arose about the reverse situation i.e. rapid downgrades of sovereign and bank ratings. However, a view might be taken that some European sovereign and bank ratings were inflated prior to 2010, which then exacerbated the rate of downgrades once the crisis took hold, e.g. Bar-Isaac and Shapiro (2013) argue that ratings quality is counter-cyclical. Although these authors focus on initial ratings, one can infer from their model that CRAs could be relatively relaxed about high ratings in the ‘boom’ years, yet may place more effort towards rating accuracy in the face of a rapid economic downturn. With regard to the empirical implications of their model, more frequent rating actions could indicate that a CRA is more attentive to ratings accuracy or quality (see Section 2 for further discussion). Our second research question addresses the possibility that each CRA adjusts its policy differently in the face of rapidly changing economic circumstances, and this is empirically investigated using CRAs' bank rating actions in Europe during 2008–2013 compared with the earlier years. As this is the first paper to address the above research questions, it fills a clear void in the literature on the behaviour of sovereign and bank ratings prior to and during the European sovereign debt crisis. For the first research question, we report that sovereign rating downgrades and negative watch signals significantly impact bank rating downgrades during the crisis period but the implementation of a sovereign ceiling policy is not identical across CRAs, whereby S&P is the most likely CRA to migrate bank ratings simultaneously with the sovereign rating. Multiple-notch sovereign rating downgrades have a stronger effect on the probabilities of bank rating downgrades than one-notch rating downgrades and negative watch signals. The effects of sovereign rating actions on bank ratings are relatively stronger in the case of the PIIGS countries. In contrast, there is no evidence of bank rating actions being linked to sovereign rating signals during the pre-crisis period. For the second research question, a lack of interdependence among CRAs' bank rating actions in the pre-crisis period is replaced by very strong links once the economic downturn is underway. A bank that has been downgraded by one CRA has a significantly increased probability to experience a harsher (multiple-notch) downgrade from a competing CRA. S&P is the first mover in European bank rating downgrades during the crisis. The remainder of the paper is organised as follows. Section 2 reviews the relevant literature, Section 3 discusses the sovereign and bank credit rating data, and Section 4 explains the methodology. Section 5 presents the empirical results and Section 6 concludes the paper.

The European sovereign debt crisis brought increased attention to the role of CRAs and to the links between sovereign and banking risks. The crisis represented a significant challenge to CRAs in deciding the timing and extent of downgrades to sovereign and bank ratings. The three large CRAs dealt with the issues differently, leading to differences in the timing of rating actions and a preponderance of split ratings. The paper's primary focus is upon the actions of different CRAs in response to the European crisis period. The paper's first research question addresses a void in the literature by analysing the ‘rating channel’ through which sovereign risk was transmitted to the banking sector during the sovereign debt crisis. We investigate the strength of links between sovereign and bank rating actions and ask whether these links differ across CRAs and/or across countries. The paper's second research question addresses how each CRA adjusts its bank ratings differently in the face of rapidly changing economic circumstances. We draw on recent theoretical literature to frame the expectations and interpretations of CRAs' actions. The empirical evidence is based on 84 banks in 21 European developed countries, with S&P, Moody's and Fitch ratings for the pre-crisis period (2003–2007) and crisis period (2008–2013). The descriptive statistics highlight that the average bank ratings are lower than the average sovereign ratings by 2 notches, with more than 85% of the bank rating observations below the sovereign ceiling during the crisis period. A strong rating downgrade trend dominates the crisis period, while the pre-crisis period is characterised by stable ratings. We observe differences in opinion and timing of bank and sovereign rating actions across CRAs, with Moody's (S&P) broadly tending to be the most generous (conservative) CRA. We find no evidence of the sovereign-bank rating channel during the pre-crisis period, then it comes to prominence strongly during the crisis period. Sovereign rating actions became of substantial importance for banks in European developed markets. Significant differences are identified across the three CRAs in their policy regarding the attachment between sovereign and bank credit actions. We find that multiple-notch sovereign rating downgrades by S&P have the strongest impact on bank rating downgrades. We also reveal higher probability of multiple-notch bank rating downgrades by Moody's than Fitch, which is consistent with Moody's greater propensity to adjust ratings decisively when the action is taken. Although negative sovereign watch actions by the three CRAs significantly affect bank rating downgrades, their impact is relatively weaker than actual downgrades. Banks in PIIGS countries are more affected by the sovereign credit signals than those in other European countries, in line with the fact that the exposures of European banks in Greece, Portugal, Italy and Spain to the sovereign debt of their own country were substantial. On the second research question, a lack of interdependence among CRAs' bank ratings in the pre-crisis period is replaced by very strong links once the economic downturn is underway, which is in line with theory in Bar-Isaac and Shapiro, 2013 and Manso, 2013 and Opp et al. (2013). A bank that has been downgraded by one CRA has a significantly increased probability to experience harsher downgrades by one of the competing CRAs, which is consistent with conservative rating practices in a sector where CRAs have considerable experience (as implied by Opp et al. (2013)). S&P has most evidence of acting as a first mover in bank rating downgrades, implying that S&P may have greater focus on reputational credibility among market participants (see Camanho et al., 2012). Moody's appears more cautious in downgrading but can then take decisive action, as evidenced by its frequent use of multiple-notch downgrades. There are other differences in rating policy, whereby Moody's applies greater rating stability than the other two CRAs. Different users of ratings will have different preferences across the CRAs' policies (e.g. see Boot et al., 2006). We contribute to the bank rating literature by providing evidence suggesting that the probabilities of bank rating migrations can be estimated more precisely by considering previous bank rating actions by a competing CRA and also by taking into account sovereign credit signals for the home country of the banks. For European countries, we show a strong potential for rating leadership in the banking sector, whereby S&P appears to be the most independent actor. A possible reason for evidence of Fitch's relative independence is that the countries/banks of interest are located in the European area, given that Fitch has dual headquarters and a European owner. Regulators, financial institutions, issuers and credit managers will be interested in the relationships among CRAs in several respects. CRAs will also be interested from a reputational perspective, particularly with the expectation of increased competition and transparency in the rating industry following the recent introduction of formal European Union regulations.