DBRS Requests Comments on its Updated Global Methodology for Rating Banks and Banking Organisations

DBRS has today requested comments on the 2017 update of its “Global Methodology for Rating Banks and Banking Organisations” (the GBM). This update has several important changes from the 2016 edition, but no rating changes are anticipated from its adoption.

Highlights of this updated bank methodology are:
• Single document now includes three related banking Criteria
• Enhanced bank methodology grids
• Introduction of scorecard
• Support assessment update
• Framework for rating full range of bank obligations presented

To facilitate ease of use, this update of the GBM incorporates three separate criteria into a single document that addresses most aspects of our bank rating methodology. In this update, the building block approach to our analysis of a bank’s fundamentals remains central, but the grids that drive this analysis have been enhanced. A scorecard is also being introduced to improve consistency both across jurisdictions and over time. Greater clarity is provided on our approach to the assessment of support, both systemic support and internal support within banking organisations. This update also provides a framework that addresses the ratings of the full range of bank obligations covering senior debt, critical obligations and bank capital securities in a regulatory environment that continues to evolve. As part of the release of this update, our intent is also to provide more transparency through more extensive disclosure of the underlying components of our grids by the end of June.

In this update, the core approach to assessing a bank’s intrinsic strength using our five building blocks remains unchanged, but various refinements are introduced to the grids. The range of the assessments by building block has also been extended to include “Very Weak “, and now comprises: “Very Strong”, “Strong”, “Good”, “Moderate”, “Weak” and “Very Weak”. Reflecting the interlocking nature of the building blocks and the comparable importance of each block, the methodology now makes it explicit that the blocks are equally weighted. To facilitate market understanding of the components of our Intrinsic Assessments and the underpinnings of our ratings, our intent is to release the grades for each of the five building block grids for our rating universe where relevant.

As an additional analytical tool, this update of the GBM introduces a scorecard. To assess a bank’s strength across the five building blocks, the scorecard uses one to three metrics for each building block to derive an overall score for a bank that can be compared to the results of the more detailed analysis in the grids. Metrics were selected that can be generated for individual banks across different types of banks and different jurisdictions. This straightforward scorecard provides a means to broadly assess the consistency of our ratings approach across jurisdictions and over time. Initially, disclosure of the scorecard results will be limited to general analysis, rather than individual bank details.

Support assessments are an important consideration in the analysis of banking organisations and their subsidiaries. The separate Criteria on Support Assessments is now incorporated in Section IV of the GBM and this update provides more clarity on how we approach both systemic support and internal support within banking organisations. Given the increased role of bank holding companies (BHCs) in some countries, this update also provides more detail on our approach to ratings for this form of banking organization. It also addresses the assessment of intermediate BHCs. Also addressed in more detail in this section is our approach to rating members of FI Associations, including associations of cooperatives, credit unions, public savings banks and other similar institutions, and central entities that are part of such FI Associations.

The GBM has a framework for rating the full range of bank obligations from critical obligations to bank capital securities. In Section V, the GBM incorporates two separate criteria that address these types of obligations. Importantly, this framework facilitates the rating of bank senior obligations in an environment that continues to evolve with the introduction of “bail-in” legislation and the development of resolution regimes. It also addresses new types of debt, such as senior nonpreferred debt.

Feedback
Comments on all aspects of the methodology are appreciated. In particular, comments would be appreciated on the newer elements in this update:
• The refinements to the grids framework
• The use of equal weights for the building blocks
• Introduction of the scorecard
• Expansion of support discussion
• Framework for rating bank obligations
• Combination into single document

Comments should be received on or before May 3, 2017. Please submit comments to the following email address: Financial.Institutions.Comments@dbrs.com. DBRS publishes all comments received on its website, except in cases where confidentiality is requested by the respondent.

Notes:
DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.