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Moody's to change govt support ratings

Tuesday 2 August 2011 - by Andrew Hickley

Moody's has put forward proposals that could change the way banks with implicit government support are rated.

Under its rating methodology, banks that are deemed to have systemic support receive higher ratings from the agency.

But under new proposals from the rating agency, banks would lose these gains if Moody's does not monitor the ratings of the entity providing it with the support.

The change would apply in a "small number of cases" - including where support comes from cooperative bodies or local regional government - and would affect around 1 per cent of its overall ratings, Moody's said.

"As part of our continuing efforts to enhance the quality of the data underlying our ratings, we are considering requiring that support providers have either a public or private monitored rating from Moody's," it said on Tuesday.

"Only in cases where (i) our assessment of the support provider's credit worthiness does not provide uplift, but limits rating downside risks; or (ii) where multiple support layers are available, will we consider allowing the input for our assessment of the support provider's credit worthiness to be based on a credit estimate as those circumstances affect rating transition risk, as opposed to rating levels."

Moody's has set a deadline of 15 September to receive responses on the proposals.

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