Joint Default Analysis

 

Support may come from one or more of the sources listed below:
  • Operating Parent / Shareholder Support
  • Cooperative Group Support
  • Regional / Local Government Support
  • Systemic Support (National Government)

Rather than attempt to model the various probabilities of support and default correlations, we’ve designed a JDA framework that evaluates support in a sequential process. The intention here is to replicate the likely sequence of forthcoming support to a bank.

The sequential support framework is summarized in this diagram. Moving left to right, you'll see the sequence of considerations that drives Moody's senior debt and deposit rating.

Within the sequential framework, the JDA algorithm can be applied up to four times for a given
bank once for each potential support provider. However, in practice, few banks would have all
four types of support available.

At each stage, the results from the previous stage carry over. For example, at stage 1, the
Baseline Credit Assessment (BCA), will be used as the underlying rating input. At stage 2, the
parent-supported rating becomes the underlying rating, and so forth. The Local Currency Deposit
Rating will be the final rating output from Stage 4.

JDA is a consistent, transparent approach to evaluate support factors; however, Moody's bank
deposit ratings continue to be determined using judgment, not just models.

Treatment of Foreign Currency Obligations

The implementation of JDA for banks does not change Moody’s methodology for assigning
foreign currency ratings to banks. These continue to be based on the obligations local currency
rating and Moody’s country ceiling policy.

The Foreign Currency Deposit Rating is in all cases constrained by the Country Ceiling for
Foreign Currency Bank Deposits.

Read the methodology: Incorporation of Joint-Default Analysis into Moodys Bank Ratings:
A Refined Methodology.

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