September 2020 issue contents
Bank Standalone Credit Ratings

Michael R. King,a Steven Ongena,b and Nikola Tarashevc


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.

JEL Code: G21, G14, G15.

Full article (PDF, 44 pages, 631 kb)

a Gustavson School of Business, University of Victoria
b University of Zurich, Swiss Finance Institute, KU Leuven, and CEPR
c Bank for International Settlements