Rating groups vs rating of group members: evidence from the Italian financial market

The standardized method set out in the New Basel Accord requires the different evaluation of similar counterparties belonging to groups with a different rating. Based on the “criteria” adopted by the rating agencies, there are no independent estimates of group ratings, with respect to the rating of the individual group entities, and, in many cases, the agencies choose not to notify the market of their judgement of the group. This paper examines the ratings of groups and individual group entities, with a view to assessing the effects of change to the group structure on the rating. The analysis focuses on the financial sector and is limited to the Italian market, which has been characterized in recent years by a strong trend towards concentration. The results achieved by analysing the rating processes by the principal international agencies (Fitch, Moody’s and Standard and Poor’s) show that the ratings of the groups, or of the individual group entities, adjusted on the basis of their characteristics, are not at all affected by the occurrence of significant corporate events regarding the group’s structure.