Bank Ratings Incorporate Expectations For ... - Standard & Poor's

Financial Institutions Research
Bank Ratings Incorporate
Expectations For Improving Capital
Assessments Globally
Primary Credit Analysts:
Elie Heriard Dubreuil, New York (1) 212-438-2949; elie_heriard_dubreuil@standardandpoors.com
Thierry Grunspan, Paris (33) 1-4420-6739; thierry_grunspan@standardandpoors.com
Secondary Contacts:
Mathieu Plait, London (44 ) 207 -176 -7074; mathieu_plait@standardandpoors.com
Simon Outin, Paris 33 1 44 20 7377; simon_outin@standardandpoors.com
Santiago Carniado, Mexico City (52) 55-5081-4413; santiago_carniado@standardandpoors.com
Bernard de Longevialle, Paris (33) 1-4420-7334; bernard_delongevialle@standardandpoors.com
David Harrison, London (44) 20-7176-7064; david_harrison@standardandpoors.com
Ritesh Maheshwari, Singapore (65) 6239-6308; ritesh_maheshwari@standardandpoors.com
Craig Parmelee, CFA, New York (1) 212-438-7850; craig_parmelee@standardandpoors.com
Hans Wright, London (44) 20 7176 7015; hans_wright@standardandpoors.com
Table Of Contents
Our Revised Criteria Clarify The Impact That Capital Has On Bank
Ratings
The Risk-Adjusted Capital Ratios Are The Starting Point For Our Capital
And Earnings Projections
The RAC Ratios Vary Highly By Region
Our Capital And Earnings Assessments Factor In Global Banks' Expected
Capitalization Improvements
RESEARCH
Estimated RAC Ratios As Of Sept. 30, 2011
Related Research
Appendix: Assumptions
February 29, 2012
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Bank Ratings Incorporate Expectations For
Improving Capital Assessments Globally
(Editor's Note: In the original version of this article, the rating on Macquarie Group was misstated in table 2. A
corrected version follows.)
Large banks' capital adequacy generally has improved since the global credit crisis. Standard & Poor's Ratings
Services expects this improvement to continue over the next few years based on banks' need to meet the more
stringent Basel III regulatory requirements. (Watch the related CreditMatters TV segment titled, "Why Capital And
Earnings Could Continue To Improve At 100 Of The World’s Largest Banks," dated Feb. 29, 2012.)
In this comparative analysis of large banks' capital, we present the risk-adjusted capital (RAC) ratios for 100 of the
largest banks in the world that we publicly rate, from 29 different countries. This is our third global study of RAC
ratios on the world's leading banks, and the first under our updated criteria, which clarify the impact that capital
has on bank ratings (see "Banks: Rating Methodology And Assumptions," published Nov. 9, 2011). We estimate
the average RAC ratio as of Sept. 30, 2011, was 7.4%, compared with 7% at the end of June 2010 and 6.1% as of
June 30, 2009 (see tables 2 and 3). Excluding the increases in sovereign and banking industry country risks since
June 2010, particularly in Southern Europe, we estimate that the RAC ratios for these 100 banks would have been
about 25 basis points higher.
Our opinion of capital position (which combines our assessments of "capital and earnings" and "risk position") is
currently less of a negative ratings factor than it was a year ago. We base our capital and earnings assessment
primarily on projected RAC ratios, and the risk position assessment on our qualitative assessment of a bank's
unique financial risks and risk management. During the past year, banks have strengthened their capital positions
through increased earnings retention, capital raises, and balance sheet reductions. In addition, we have lowered the
ratings on many of these 100 banks since January 2011.
Overview
• Globally, large banks' RAC ratios have increased since the financial crisis.
• We estimate the average RAC ratio for 100 of the largest banks in the world was 7.4% as of Sept. 30, 2011, compared with 7% at
the end of June 2010 and 6.1% as of June 30, 2009.
• We expect this trend to continue, as we've factored into our forward-looking capital and earnings assessments.
• However, failure to improve capital could result in downgrades, which is one factor in our negative outlooks on 28 of 100 of the
largest banks in the world.
We have negative outlooks on 27 of these 100 banks, which means the likelihood that we would lower our ratings
on these banks is one-in-three. In addition, our ratings on Banco Popular Espanol S.A. are on CreditWatch negative.
One of the reasons for these negative assessments is the risk that capital does not strengthen as much as we expect.
Currently, we expect 25 of these 100 banks, mostly from Europe and the U.S., to increase their RAC ratios such that
their capital and earnings assessments would improve by one category on our six-point scale.
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Our Revised Criteria Clarify The Impact That Capital Has On Bank Ratings
Capital and earnings and risk position are two of the four bank-specific factors that Standard & Poor's analyzes
when rating banks (see "Banks: Rating Methodology And Assumptions"). We assess both on a six-point scale--very
weak, weak, moderate, adequate, strong, and very strong.
In general, an "adequate" assessment has no impact on the rating. All else being equal, a "moderate" assessment
would result in the rating being one notch lower, a "weak" assessment would lead to the rating being two or three
notches lower, and "very weak," five notches lower. On the other hand, a "strong" assessment would result in the
rating being one notch higher, and a "very strong" assessment, two notches higher. In total, the combined impact of
these two assessments ranges from 10 notches lower to four notches higher.
Within this sample of 100 large global institutions, the combined impact of our capital and earnings and risk
position assessments ranges from minus two to positive two notches (see chart 1). For example, Regions Financial
Corp. has moderate assessments in both factors, and so our rating on the bank reflects an adjustment of minus two
notches. At the other extreme, Zuercher Kantonalbank has very strong capital and earnings and an adequate risk
position, and so our rating on the bank incorporates an uplift of two notches.
Chart 1
We base our capital and earnings assessment primarily on a bank's projected RAC ratio over one to two years,
provided that the bank exceeds its minimum regulatory capital requirements by at least 100 basis points, as detailed
in our criteria. The RAC ratio is total adjusted capital (TAC) to Standard & Poor's RAC risk-weighted assets
(RWA). For borderline projections, our view of the quality of capital and earnings helps to determine the
assessment.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
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We associate ranges of our projected RAC ratio with different capital and earnings assessments (see chart 2). For
example, capital and earnings are adequate when the projected RAC ratio is 7%-10%. Consequently, the capital
and earnings assessment provides an indication of how we expect the RAC ratio to develop. If the historical RAC
ratio is much less than 7%, and we view capital and earnings as adequate, one can conclude that we expect the RAC
ratio to strengthen in the future.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
The more qualitative risk position assessment complements our view of a bank's risks by comparing the
bank-specific risks to the standard risk assumptions that we use to calculate RAC ratios. In other words, a strong or
very strong assessment indicates that our RAC ratio understates a bank's capital position. A moderate or weaker
assessment means our RAC ratio overstates a bank's capital position. Risk concentrations and diversification are an
important factor in the risk position, as is the complexity and changing nature of risks. This section of our analysis
also considers the risks that we don't factor into the RAC ratio, such as potential mark-to-market write-downs on
sovereign exposures, notably to Southern Europe, as well as interest-rate risk in the banking book and funding risk.
(See the RACF criteria, "Bank Capital Methodology And Assumptions," published Dec. 6, 2010.)
The Risk-Adjusted Capital Ratios Are The Starting Point For Our Capital And
Earnings Projections
The challenge of comparing regulatory capital ratios globally led Standard & Poor's to develop its risk-adjusted
capital framework (RACF). The main quantitative output of the RACF is the RAC ratio. TAC represents an
enlarged definition of the amount of capital a bank has available to absorb losses. It includes some hybrids subject
to eligibility criteria and limits (see "Bank Hybrid Capital Methodology And Assumptions," published Nov. 1,
2011). We derive our RAC RWA from globally consistent risk charges applied to on-balance-sheet and
off-balance-sheet exposures. Our risk charges capture credit, market, insurance, and operational risk losses under a
'A' stress scenario. (For detailed examples of Standard & Poor's stress scenarios, see Appendix IV of "General
Criteria: Understanding Standard & Poor's Rating Definitions," published June 3, 2009.)
Our capital and earnings assessments for 100 of the largest banks in the world, mostly based on the projected RAC
ratios, correlate highly with the estimated RAC ratios as of September 2011 (see chart 2).
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Chart 2
The RAC Ratios Vary Highly By Region
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
On average, these 100 banks increased their RAC ratios by about 40 basis points during the past five quarters.
However, we note significant regional variations. Banks in Latin America, Germany, Asia (excluding China and
Japan), Australia, the Nordic countries, and the U.S. exhibited stronger regional averages as of Sept. 30, 2011,
whereas banks in the rest of Western Europe, Canada, China, and Japan had generally weaker RAC ratios (see chart
3). Our new hybrid criteria exclude from the TAC calculation most bank hybrid capital instruments that have
coupon step-ups on an optional call date or features equivalent to step-ups. This significantly decreased French and
Canadian banks' TAC, weakening their capital ratios relative to peers'.
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Chart 3
We estimated the average RAC ratio for banks in the EU was 6.8% as of Sept. 30, 2011, versus an average of 7.8%
for the rest of the world. This is in line with the results of the quantitative impact study that the Basel Committee on
Banking Supervision (BCBS) and the European Banking Authority (EBA) performed at the end of 2010. The studies
found that the average common equity Tier 1 (CET1) ratio for 74 of the largest banks in the world (international
banks with Tier 1 capital of more than €3 billion) was 5.7%, versus 4.9% for banks in the EU, based on end-year
2009 data and on fully phased-in Basel III requirements.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
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On Dec. 8, 2011, the EBA published a recommendation for European banks to increase their Core Tier 1 ratio to
9% by June 2012, in addition to a buffer to cover mark-to-market losses on sovereign assets. The EBA estimated
this so-called "sovereign buffer" to about €40 billion in December 2011, out of a total shortfall of €115 billion.
This challenging target led many European banks to plan substantial capital raises and a reduction in RWA. On
Feb. 9, 2012, the EBA published a preliminary review of the plans banks submitted to meet this target. The EBA
estimates that the total actions banks planned will lead to a surplus that exceeds the regulators' requirements by
approximately 26%. Direct capital raising (either through retained earnings, conversion of existing hybrids to Core
Tier 1, equity issuance, or issuance of contingent convertible bonds) accounts for about three-quarters of the total
actions, while reductions in RWA (deleveraging and internal model revisions) are responsible for the remainder. (See
"As Europe's Banks Look To Shore Up Capital, Pressure On Hybrid Debt Grows," published Feb. 13, 2012.) The
EBA estimates that internal rating models revisions, which are neutral from a RAC perspective, will represent less
than 10% of the total capital building measures. As a result of the total actions banks plan to take, we believe that
their RAC ratios will strengthen and that the gap between European banks' ratios and non-EU banks' ratios will
narrow.
The EBA and BCBS studies ignore the transition period for Basel III that regulators scheduled to end in 2019, with
some grandfathering of hybrids up to 2023. For more details on the Basel Committee study, see "Basel's Global
Quantitative Impact Study Exposes Large Banks’ Regulatory Capital Shortfall," published Dec. 20, 2010.
Our Capital And Earnings Assessments Factor In Global Banks' Expected
Capitalization Improvements
Generally, we expect that banks globally will continue to strengthen their capital ratios in anticipation of the Basel
III capital requirements. We project these banks will continue to retain a significant amount of earnings, reduce
RWA, raise capital, or a combination of the three, and our capital and earnings assessments reflect this. In fact,
almost one-third of the banks that we have assigned adequate assessments have estimated RAC ratios as of Sept. 30,
2011, of 5%-7% (see table 1). This range would correspond with a moderate assessment if the criteria did not factor
in our projections.
Table 1
Distribution By Estimated RAC Ratio Ranges (%)
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
Capital and earnings assessment Less than 5% 5%-7% 7%-10% 10%-15% More than 15%
Weak 100 0 0 0 0
Moderate 12 77 12 0 0
Adequate 0 30 70 0 0
Strong 0 0 36 55 9
Very strong 0 0 0 0 100
Note: Each line splits the banks with a given capital and earnings assessment by their estimated RAC ranges. Estimated RAC ratios as of Sept. 30, 2011.
For example, some banks significantly raised capital since the end of September, which is not reflected in our RAC
ratio estimates. Notably, in January 2012, Unicredit completed a €7.5 billion share capital increase, which raises our
RAC ratio by about 105 basis points. We expect Unicredit's RAC ratio to approach 7% in the next 18-24 months,
reflecting strong balance sheet control. In December 2011, National Bank of Greece completed the issuance of €1
billion preference shares subscribed by the Greek government and realized about €300 million of capital gains from
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the buyback of debt instruments. We estimate that the two measures together would enhance the bank RAC's ratio
by about 65 basis points. In addition, as of Jan. 31, 2012, Zuercher Kantonalbank successfully completed the
issuance of Swiss franc (CHF) 590 million in Tier 1 subordinated debt, which we include in our TAC, and which we
believe would likely enhance the bank's RAC ratio by about 100 basis points.
Another bank that has substantially increased capital since September 2011 is Santander. Based on the bank's
reported figures as of year-end 2011, we believe that its RAC ratio should have improved by at least 50 basis points
in fourth-quarter 2011. The bank took several initiatives in the fourth quarter to comply with the EBA's core capital
requirements in advance of the June 2012 deadline. Some of those, in particular the extension of the scrip dividend
program and a reduction in the amount of goodwill and other intangibles, should have a positive impact on our
year-end 2011 RAC. However, other measures aimed at converting Tier 1 instruments into core capital were neutral
to our RAC because we already gave full credit in our RAC to the hybrids subject to the exchange.
In addition, UBS substantially deleveraged market risk exposures in the fourth quarter of 2011. On a pro forma
basis, we estimate that the RAC ratio was close to or within the 7%-8% range at year-end 2011. Bank of America
(BofA) also increased its RAC ratio meaningfully during the fourth quarter as a result of a number of significant
capital actions. We estimate that the RAC ratio should have improved by about 90 basis points. Actions taken
during the quarter included an exchange of preferred and trust preferred securities for common stock and senior
notes. The company also sold its investment in China Construction Bank (CCB). Also during the quarter, BofA
reduced its RWA by a reported $75 billion through the sale of noncore assets and other management actions. In
2012, KBC finalized the signed agreements to sell Warta, KBL, and Fidea, which we believe will increase KBC's
RAC ratio by about 50 basis points.
Another example of a bank with a RAC ratio currently lower than its capital and earnings assessment would imply
is VTB Bank. VTB's RAC ratio dropped to an estimated 3.8% as of Sept. 30, 2011, from 6.9% at year-end 2010
because of the bank's third-quarter 2011 purchase of Bank of Moscow (BOM) under fair value accounting. The
acquisition increased VTB's risk-weighted assets and reduced its tangible equity because of an increase in goodwill.
Just prior to the purchase, the Russian government took the troubled BOM under administration and injected $5
billion, increasing BOM's loss reserves to approximately 50% of loans. VTB Bank purchased the BOM loans net of
reserves at 50% of prior book value. We believe that the acquisition at a deep discount limits the risk of further
losses on the BOM portfolio. We did not adjust VTB's pro forma RAC ratio as of Sept. 30, 2011, for this.
On the other hand, a few banks have capital and earnings assessments that are lower than what their estimated
September 2011 RAC ratios would suggest. One of the reasons for this is that our estimates reflect benefits to the
RAC ratio that are temporary and, therefore, not considered in our projections. (For example, Banca MPS' RAC
ratio includes Tremonti bonds--hybrid capital subscribed by the Italian government--that we believe should be
reimbursed before year-end 2013.) Another reason is that we believe some of these banks' RAC ratios could
deteriorate based on our expectation for rapid growth.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
Estimated RAC Ratios As Of Sept. 30, 2011
We made our most recent estimates of RAC ratios at the end of third-quarter 2011, which is Sept. 30 for most
banks (see table 2). Exceptions include Canadian banks, for which it is Oct. 31. The estimated RAC ratios reflect the
sovereign ratings and the banking industry country risk assessments (BICRA), including the economic and industry
risk scores, as of Feb. 28, 2012. The numerator of the estimated RAC ratio is TAC, which Standard & Poor's
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computes under the hybrid criteria. As for the denominator (RAC RWA), whenever comprehensive disclosures were
not available to precisely compute the RAC RWA, we assessed the growth rate (or decline) in regulatory RWA
between the date of calculation with full disclosure (such as December 2010) and Sept. 30, 2011, and applied the
same growth rate (or decline) to our RAC RWA. (See the appendix for details on our assumptions for U.S. banks.)
To make table 2 more comparable, the long-term issuer rating refers to the main operating banks within a particular
group. Holding companies are typically rated one notch lower than operating banks in a group to reflect the
structural subordination of their creditors.
Overall, we observe a strengthening trend in capital for the 100 largest banks globally, and our ratings on about
one-third of these banks reflect our expectation that their RAC ratios will step up a level. Any failure to improve
could result in downgrades.
Table 2
Estimated Capital Ratios For 100 Of The Largest Banks
Country Entity name
Australia Australia and New Zealand
Banking Group Ltd.
Australia Commonwealth Bank of
Australia‡
Long-term
issuer
credit
rating Outlook
Estimated RAC
ratio before
diversification
as of Sept. 30,
2011 (%)
Capital and
earnings
assessment
Risk position
assessment
Combined
impact of
capital and
earnings and
risk position
assessments
(number of
notches)
AA- Stable 8.5 Adequate Adequate 0
AA- Stable 7.5 Adequate Adequate 0
Australia Macquarie Group Ltd.¶§ A Stable 8.9 Adequate Moderate (1)
Australia National Australia Bank Ltd. AA- Stable 7.8 Adequate Adequate 0
Australia Westpac Banking Corp. AA- Stable 8.0 Adequate Adequate 0
Austria Erste Group Bank AG A Negative 5.7 Moderate Adequate (1)
Austria Raiffeisen Banking Group
Austria¶†
A Negative 5.1 Moderate Adequate (1)
Belgium KBC Group N.V.¶ A- Stable 4.5 Moderate Adequate (1)
Brazil Banco Bradesco S.A. BBB Stable 5.9 Moderate Adequate (1)
Brazil Banco do Brasil S.A BBB Stable 6.5 Adequate Adequate 0
Brazil Banco Nacional de
Desenvolvimento Economico e
Social
BBB Stable 12.6 Strong Adequate 1
Brazil Banco Santander (Brasil) S.A. BBB Stable 9.7 Adequate Adequate 0
Brazil Itau Unibanco Holding S.A.¶ BBB Stable 5.5 Moderate Adequate (1)
Canada Bank of Montreal A+ Stable 6.8 Adequate Adequate 0
Canada Canadian Imperial Bank of
Commerce
A+ Stable 7.4 Adequate Adequate 0
Canada Royal Bank of Canada AA- Stable 6.7 Moderate Strong 0
Canada The Bank of Nova Scotia AA- Stable 6.4 Adequate Strong 1
Canada Toronto-Dominion Bank AA- Stable 7.7 Adequate Adequate 0
China Bank of China Ltd.* A Stable 6.6 Moderate Moderate (2)
China Bank of Communications Co.
Ltd.*
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
A- Stable 6.0 Moderate Adequate (1)
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Table 2
Estimated Capital Ratios For 100 Of The Largest Banks (cont.)
China China Construction Bank
Corp.*
China Industrial and Commercial
Bank of China Ltd.*
A Stable 7.2 Moderate Moderate (2)
A Stable 6.6 Moderate Adequate (1)
Denmark Danske Bank A/S A Negative 6.3 Moderate Adequate (1)
Denmark Nykredit Realkredit A/S A+ Stable 8.3 Adequate Strong 1
Finland OP-Pohjola Group AA- Stable 10.6 Strong Adequate 1
France BNP Paribas AA- Negative 5.6 Moderate Strong 0
France BPCE A Stable 5.9 Moderate Adequate (1)
France Credit Agricole Group A Stable 5.3 Moderate Adequate (1)
France Credit Mutuel Group* A+ Stable 7.1 Adequate Adequate 0
France Societe Generale A Stable 5.8 Moderate Adequate (1)
Germany Commerzbank AG A Negative 7.2 Adequate Moderate (1)
Germany Cooperative Banking Sector
Germany‡‡
AA- Stable 10.7 Strong Adequate 1
Germany Deutsche Bank AG A+ Negative 6.0 Adequate Moderate (1)
Germany S-Finanzgruppe
Hessen-Thueringen†(1)
Greece National Bank of Greece S.A.
§§
Hong Kong Bank of China (Hong Kong)
Ltd.*
Hong Kong The Hongkong and Shanghai
Banking Corp. Ltd.*
A Stable 9.3 Strong Adequate 1
CCC Negative 3.0 Weak Weak (2)
A+ Stable 15.8 Strong Moderate 0
AA- Stable 8.0 Adequate Adequate 0
India ICICI Bank Ltd. BBB- Stable 9.3 Adequate Adequate 0
India State Bank of India§ BBB- Stable 6.2 Moderate Adequate (1)
Italy Banca Monte dei Paschi di
Siena SpA
BBB Negative 6.3 Moderate Adequate (1)
Italy Intesa Sanpaolo SpA BBB+ Negative 6.4 Adequate Strong 1
Italy UniCredit SpA BBB+ Negative 5.7 Adequate Adequate 0
Japan Mitsubishi UFJ Financial
Group Inc.¶
A+ Stable 7.4 Adequate Adequate 0
Japan Mizuho Financial Group Inc.¶ A+ Negative 5.5 Moderate Adequate (1)
Japan Nomura Holdings Inc.¶ A- Stable 7.3 Adequate Moderate (1)
Japan Sumitomo Mitsui Financial
Group Inc.¶
A+ Negative 6.0 Moderate Adequate (1)
Malaysia Malayan Banking Bhd. A- Stable 6.5 Adequate Adequate 0
Mexico Banco Nacional de Mexico
S.A.
BBB Stable 8.7 Strong Adequate 1
Mexico BBVA Bancomer S.A. BBB Stable 9.6 Strong Adequate 1
Netherlands ABN AMRO Bank N.V. A+ Negative 7.6 Adequate Adequate 0
Netherlands Cooperatieve Centrale
Raiffeisen-Boerenleenbank
B.A. (Rabobank Nederland)††
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
AA Negative 7.2 Adequate Strong 1
Netherlands ING Bank N.V. A+ Stable 7.7 Adequate Adequate 0
Norway DNB Group¶ A+ Stable 7.6 Adequate Adequate 0
Russia JSC VTB Bank (2) BBB Stable 3.8 Moderate Moderate (1)
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Table 2
Estimated Capital Ratios For 100 Of The Largest Banks (cont.)
Saudi Arabia The National Commercial Bank A+ Stable 10.9 Strong Moderate 0
Singapore DBS Bank Ltd. (3) AA- Stable 7.1 Adequate Adequate 0
Singapore Oversea-Chinese Banking
Corp. Ltd.
AA- Stable 8.2 Adequate Adequate 0
Singapore United Overseas Bank Ltd. AA- Stable 8.1 Adequate Adequate 0
South Korea Industrial Bank of Korea A Stable 7.0 Adequate Adequate 0
South Korea Kookmin Bank A Stable 7.6 Adequate Adequate 0
South Korea Shinhan Bank A Stable 7.3 Moderate Adequate (1)
South Korea Woori Bank A- Stable 6.6 Moderate Moderate (2)
Spain Banco Bilbao Vizcaya
Argentaria S.A.
Spain Banco Popular Espanol S.A. BBB- Watch
Neg
A Negative 5.9 Adequate Very Strong 2
6.6 Adequate Moderate (1)
Spain Banco Santander S.A. A+ Negative 5.8 Adequate Strong 1
Spain Bankia – BFA Group BBB- Negative 5.3 Moderate Adequate (1)
Spain Caixa Bank-Caja de Ahorros y
Pensiones de Barcelona
BBB+ Stable 7.1 Adequate Strong 1
Sweden Nordea Bank AB AA- Stable 7.5 Adequate Strong 1
Sweden Skandinaviska Enskilda
Banken AB (publ)
A+ Stable 8.3 Adequate Adequate 0
Sweden Svenska Handelsbanken AA- Stable 7.0 Adequate Strong 1
Sweden Swedbank AB A+ Stable 8.8 Adequate Adequate 0
Switzerland Credit Suisse Group AG¶ A+ Negative 6.2 Adequate Moderate (1)
Switzerland UBS AG A Negative 5.7 Adequate Moderate (1)
Switzerland Zuercher Kantonalbank* AAA Stable 15.2 Very Strong Adequate 2
Turkey Turkiye Garanti Bankasi AS BB Positive 7.5 Adequate Adequate 0
U.K. Barclays PLC¶ A+ Stable 7.1 Adequate Adequate 0
U.K. HSBC Holdings PLC¶* AA- Stable 7.5 Adequate Strong 1
U.K. Lloyds Banking Group PLC¶ A Stable 5.6 Moderate Moderate (2)
U.K. Nationwide Building Society A+ Stable 6.4 Adequate Strong 1
U.K. Standard Chartered Bank¶* AA- Stable 8.3 Adequate Strong 1
U.K. The Royal Bank of Scotland
Group PLC¶**
A Stable 5.8 Adequate Moderate (1)
U.S. Bank of America Corp.¶ A Negative 7.2 Adequate Moderate (1)
U.S. Bank of New York Mellon
Corp.¶
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
AA- Negative 4.8 Moderate Strong 0
U.S. BB&T Corp.¶ A Stable 8.1 Adequate Strong 1
U.S. Capital One Financial Corp.¶ BBB+ Negative 7.3 Adequate Adequate 0
U.S. Citigroup Inc.¶ A Negative 6.7 Adequate Moderate (1)
U.S. Citizens Financial Group, Inc.¶ A Stable 11.6 Strong Adequate 1
U.S. Comerica Inc.¶ A Stable 9.2 Adequate Strong 1
U.S. Fifth Third Bancorp¶ BBB+ Positive 8.4 Adequate Moderate (1)
U.S. JPMorgan Chase & Co.¶ A+ Stable 6.4 Adequate Adequate 0
U.S. KeyCorp¶ A- Positive 10.3 Strong Adequate 1
U.S. Morgan Stanley¶ A Negative 8.4 Adequate Moderate (1)
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Table 2
Estimated Capital Ratios For 100 Of The Largest Banks (cont.)
U.S. PNC Financial Services
Group¶
A Stable 8.2 Adequate Strong 1
U.S. Regions Financial Corp.¶ BBB- Stable 7.5 Moderate Moderate (2)
U.S. State Street Corp.¶ AA- Negative 6.3 Adequate Strong 1
U.S. SunTrust Banks Inc.¶ BBB+ Stable 8.1 Adequate Moderate (1)
U.S. The Goldman Sachs Group
Inc.¶
A Negative 7.2 Adequate Moderate (1)
U.S. U.S. Bancorp ¶ A+ Stable 8.2 Adequate Strong 1
U.S. UnionBanCal Corp.¶ A+ Stable 9.6 Strong Strong 2
U.S. Wells Fargo & Co.¶ AA- Negative 7.8 Adequate Strong 1
¶The rating and outlook are those on the main operating company. *Estimated RAC before diversification as of June 2011. §Pro forma RAC before diversification as of
March 2011. †Pro forma RAC before diversification as of December 2010. ‡Pro forma RAC before diversification as of June 2011. **RBS' ratios exclude the effect of the
Asset Protection Scheme. §§NBG successfully completed the issuance of €1 billion in preference shares subscribed by the Greek government, which we believe would
likely enhance the bank’s RAC ratio by about 50 basis points. Additional public funds have also been set apart to recapitalize Greek banks if needed. Nevertheless, we
believe that the magnitude of NBG's exposure to government debt, relative to its capital base, means that a potential government debt restructuring could substantially
impair the bank's capital position. ††Not adjusted for the US$2 billion hybrid issue and sale of its stake in Bank Sarasin, both announced in November 2011, and Standard
& Poor's inclusion of the Member Certificates in ACE in December 2011, which together would increase the RAC ratio by 50 basis points-80 basis points. ‡‡We computed
the pro forma RAC ratio (before diversification) as of year-end 2010 by combining public or confidential information provided on regulatory Pillar 3 data of the sectors key
member: Local cooperative banks, DZ Bank Group, Deutsche Apotheker- und Aerztebank eG, and WGZ Bank. Cross holdings and interbank placements within the group
have been retreated according to our best efforts to compute an estimate for the consolidated entity. (1)We computed our estimated RAC ratio as of end-year 2010 by
combining public or confidential information provided on regulatory Pillar 3 data of the group's key members: Savings banks in the States of Hesse and Thuringia, and
Landesbank Hessen-Thueringen Girozentrale. Cross holdings and interbank placements within the group have been retreated according to our best efforts to compute an
estimate for the consolidated entity. (2)VTB's RAC ratio dropped from 6.9% at year-end 2010 to an estimated 3.8% on Sept. 30, 2011, because of VTB’s third-quarter 2011
purchase of Bank of Moscow (BOM) under fair value accounting. VTB purchased the BOM loans net of reserves, at 50% of prior book value. We believe that the
acquisition at a deep discount limits the downside risk for VTB of further losses on the BOM portfolio. We did not adjust VTB's pro forma RAC ratio as of Sept. 30, 2011
for this. (3)For the estimated RAC before diversification as of September 2011, the numerator is TAC as of December 2010, because the bank does not disclose interim
financial statements. The growth rate of the holding company's regulatory risk-weighted assets (September 2011 versus December 2010) is incorporated in our estimate
of the denominator.
Related Research
• U.S. Banks: Estimated Basel III Capital Shortfalls Could Limit Bank Lending, Dec. 7, 2011
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Most Asia-Pacific Banks Are In Better Shape Than Their Global Peers For Basel III, But Some May Need To
Toughen Up Against New Rules, Oct. 20, 2011
• Standard & Poor's Risk-Adjusted Capital Framework Provides Insight Into Basel III, June 9, 2011
• U.S. Trust Banks' Off-Balance-Sheet Exposures Are Addressed In The Risk-Adjusted Capital Framework, March
4, 2011
• U.S. Banks' Risk-Adjusted Capital Has Improved, But Remains Neutral To Negative For Ratings, Jan. 18, 2011
• Despite Significant Progress, Capital Is Still A Rating Weakness For Large Global Banks, Jan. 18, 2011
• Basel's Global Quantitative Impact Study Exposes Large Banks' Regulatory Capital Shortfall, Dec. 20, 2010
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
Appendix: Assumptions
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
Historical risk-adjusted capital ratios
To provide transparency on the figures underlying the roll-out of our criteria in November and December 2011, we
set the sovereign ratings, BICRAs, and economic risk scores as of Nov. 30, 2011, to compute the pro forma RAC
Standard & Poors | RatingsDirect on the Global Credit Portal | February 29, 2012 12
948538 | 300076937

atios (see table 3). In other words, we used the set of parameters that were in effect when we first published the
ratings under the new bank criteria. Contrary to the set of parameters used for the September 2011 RAC estimates,
this set of parameters does not factor in the eurozone sovereign downgrades that took place in January 2012.
We started by computing pro forma historical RAC ratios based on full disclosure (such as Pillar 3 reports for banks
in Basel II jurisdictions) at the date for which such data are available. This is December 2010 for the majority of
banks. The historical RAC ratios are pro forma in the sense that we adjusted the numerator of the ratio, TAC, in
line with the new hybrid criteria (published in November 2011).
The RACF embeds explicit adjustments for concentration and diversification of credit, market, operational, and
insurance risks. The adjustment aims to capture four components: single-name concentrations in the corporate
portfolio, industry/sector concentration or diversification of the corporate portfolio, geographic concentration or
diversification of credit risk and equity risk-weighted assets, and concentration or diversification of business lines
and risk types. The large banks in this sample benefit, on average, from the concentration and diversification
adjustments. However, the capital and earnings assessment does not incorporate adjustments for diversification,
rather they contribute to our assessment of risk position.
Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores
Country Entity name
Australia Australia and New
Zealand Banking Group
Ltd.
Australia Commonwealth Bank of
Australia
Data
as of
date
March
31,
2011
June
30,
2011
Australia Macquarie Group Ltd. March
31,
2011
Australia National Australia Bank
Ltd.
March
31,
2011
Australia Westpac Banking Corp. March
31,
2011
Austria Erste Group Bank AG Dec.
31,
2010
Austria Raiffeisen Banking Group
Austria
Dec.
31,
2010
Belgium KBC Group N.V. Dec.
31,
2010
Brazil Banco Bradesco S.A. Dec.
31,
2010
Brazil Banco do Brasil S.A Dec.
31,
2010
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
RAC ratio
before
diversification
(%)
RAC ratio after
diversification
(%) Currency
8.2 9.7 Australian
dollar
7.5 8.5 Australian
dollar
8.9 9.6 Australian
dollar
7.0 8.6 Australian
dollar
7.8 9.0 Australian
dollar
Total
adjusted
capital
RAC RWA
before
diversification
RAC RWA
after
diversification
31,275 383,446 323,202
29,176 391,136 345,003
10,630 119,531 110,183
29,273 416,395 339,073
29,057 370,325 324,059
5.9 6.5 Euro 10,865 183,702 166,682
5.2 5.9 Euro 13,129 254,500 222,435
4.7 5.9 Euro 10,362 218,745 175,188
6.3 7.5 Brazilian
rial
6.5 7.6 Brazilian
rial
45,577 719,751 606,280
42,933 659,600 563,936
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948538 | 300076937

Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
Brazil Banco Nacional de
Desenvolvimento
Economico e Social
Brazil Banco Santander (Brasil)
S.A.
Dec.
31,
2010
Dec.
31,
2010
Brazil Itau Unibanco Holding S.A. Dec.
31,
2010
Canada Bank of Montreal Oct.
31,
2011
Canada Canadian Imperial Bank of
Commerce
April
30,
2011
Canada Royal Bank of Canada Oct.
31,
2011
Canada The Bank of Nova Scotia April
30,
2011
Canada Toronto-Dominion Bank April
30,
2011
China Bank of China Ltd. Dec.
31,
2010
China Bank of Communications
Co. Ltd.
China China Construction Bank
Corp.
China Industrial and Commercial
Bank of China Ltd.
Dec.
31,
2010
Dec.
31,
2010
Dec.
31,
2010
Denmark Danske Bank A/S Sept.
30,
2011
Denmark Nykredit Realkredit A/S Dec.
31,
2010
Finland OP-Pohjola Group Dec.
31,
2010
France BNP Paribas Dec.
31,
2010
France BPCE Dec.
31,
2010
France Credit Agricole Group Dec.
31,
2010
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
12.9 12.0 Brazilian
rial
10.9 12.5 Brazilian
rial
5.8 7.1 Brazilian
rial
6.8 8.4 Canada
dollar
7.0 8.3 Canada
dollar
6.7 8.4 Canada
dollar
6.2 7.4 Canada
dollar
7.3 9.1 Canada
dollar
6.7 7.7 Chinese
yuan
renminbi
5.9 6.3 Chinese
yuan
renminbi
6.9 8.0 Chinese
yuan
renminbi
6.5 7.6 Chinese
yuan
renminbi
6.3 7.5 Danisk
krone
7.9 7.3 Danisk
krone
65,899 509,591 547,917
43,344 398,393 346,250
61,513 1,054,770 862,887
20,798 307,012 248,773
13,179 187,449 159,059
33,076 495,541 393,543
22,998 372,959 309,697
25,603 352,549 280,725
627,187 9,411,800 8,191,096
222,271 3,764,956 3,500,360
638,303 9,302,058 7,942,710
740,620 11,346,823 9,759,083
104,402 1,663,286 1,399,834
55,321 699,388 754,080
11.0 11.7 Euro 5,995 54,524 51,346
5.5 7.5 Euro 60,995 1,103,813 816,989
5.5 6.9 Euro 37,677 681,013 549,168
5.1 6.9 Euro 56,105 1,089,621 811,301
Standard & Poors | RatingsDirect on the Global Credit Portal | February 29, 2012 14
948538 | 300076937

Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
France Credit Mutuel Group Dec.
31,
2010
France Societe Generale Dec.
31,
2010
Germany Commerzbank AG Dec.
31,
2010
Germany Cooperative Banking
Sector Germany §
Dec.
31,
2010
Germany Deutsche Bank AG Dec.
31,
2010
Germany S-Finanzgruppe
Hessen-Thueringen †
Greece National Bank of Greece
S.A.
Hong Kong Bank of China (Hong Kong)
Ltd.
Hong Kong The Hongkong and
Shanghai Banking Corp.
Ltd.
Dec.
31,
2010
Dec.
31,
2010
Dec.
31,
2010
Dec.
31,
2010
India ICICI Bank Ltd. March
31,
2011
India State Bank of India March
31,
2011
Italy Banca Monte dei Paschi di
Siena SpA
Dec.
31,
2010
Italy Intesa Sanpaolo SpA Dec.
31,
2010
Italy UniCredit SpA Dec.
31,
2010
Japan Mitsubishi UFJ Financial
Group Inc.
Japan Mizuho Financial Group
Inc.
March
31,
2011
March
31,
2011
Japan Nomura Holdings Inc. March
31,
2011
Japan Sumitomo Mitsui Financial
Group Inc.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
March
31,
2011
6.9 8.5 Euro 28,228 411,107 332,905
5.3 7.1 Euro 33,823 634,124 474,865
3.5 4.0 Euro 12,554 359,713 314,637
10.7 12.5 Euro 61,069 571,398 489,305
5.2 6.8 Euro 40,089 763,951 592,584
9.3 10.2 Euro 14,505 156,123 142,411
4.0 4.1 Euro 8,819 220,420 214,164
13.7 12.2 Hong Kong
dollar
7.9 8.7 Hong Kong
dollar
9.2 9.6 India
rupees
6.2 6.3 India
rupees
89,338 651,819 729,843
290,081 3,691,263 3,334,938
560,334 6,074,011 5,807,533
849,287 13,653,909 13,405,412
5.4 6.1 Euro 9,214 169,409 150,072
5.6 6.7 Euro 29,031 521,408 433,627
6.1 7.6 Euro 40,006 650,729 529,415
6.3 7.2 Japan yen 8,463,873 135,033,185 117,144,526
5.2 6.0 Japan yen 4,443,619 84,782,029 74,190,352
7.5 8.0 Japan yen 1,961,422 26,235,829 24,515,355
5.7 6.8 Japan yen 5,490,038 96,398,909 80,426,172
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948538 | 300076937

Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
Malaysia Malayan Banking Bhd. June
30,
2011
Mexico Banco Nacional de Mexico
S.A.
June
30,
2011
Mexico BBVA Bancomer S.A. June
30,
2011
Netherlands ABN AMRO Bank N.V. Dec.
31,
2010
Netherlands Cooperatieve Centrale
Raiffeisen-Boerenleenbank
B.A. (Rabobank Nederland)
Dec.
31,
2010
Netherlands ING Bank N.V. Dec.
31,
2010
Norway DNB Group Dec.
31,
2010
Russia JSC VTB Bank Sept.
30,
2011
Saudi
Arabia
The National Commercial
Bank
Dec.
31,
2010
Singapore DBS Bank Ltd. Dec.
31,
2010
Singapore Oversea-Chinese Banking
Corp. Ltd.
Dec.
31,
2010
Singapore United Overseas Bank Ltd. Dec.
31,
2010
South Korea Industrial Bank of Korea Dec.
31,
2010
South Korea Kookmin Bank Dec.
31,
2010
South Korea Shinhan Bank Dec.
31,
2010
South Korea Woori Bank Dec.
31,
2010
Spain Banco Bilbao Vizcaya
Argentaria S.A.‡
Spain Banco Popular Espanol
S.A.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
Dec.
31,
2010
Dec.
31,
2010
6.6 6.8 Malaysian
ringgit
9.8 10.0 Mexican
peso
10.0 10.4 Mexican
peso
30,044 453,314 440,078
108,817 1,107,740 1,085,203
99,045 989,730 955,109
7.3 8.3 Euro 13,856 190,114 167,236
7.1 8.6 Euro 28,023 395,253 325,797
7.7 10.0 Euro 37,065 481,095 371,274
7.8 8.7 Norwegian
krone
3.8 4.1 Russian
ruble
96,421 1,236,035 1,109,045
439,600 11,432,958 10,612,743
10.7 10.2 Saudi riyal 28,385 264,960 279,286
8.4 8.1 Singapore
dollar
9.1 9.4 Singapore
dollar
9.0 8.6 Singapore
dollar
6.2 6.0 Korean
won
7.1 7.6 Korean
won
6.4 6.7 Korean
won
5.8 6.0 Korean
won
21,940 262,696 271,752
18,274 200,421 194,732
17,318 193,309 200,619
9,892,352 159,865,471 165,777,226
18,422,865 259,237,538 243,270,381
14,247,776 222,056,846 211,720,595
13,578,028 233,168,223 224,651,004
6.0 7.4 Euro 34,054 572,173 460,596
6.3 6.9 Euro 9,629 153,285 139,028
Standard & Poors | RatingsDirect on the Global Credit Portal | February 29, 2012 16
948538 | 300076937

Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
Spain Banco Santander S.A. Dec.
31,
2010
Spain Bankia – BFA Group Dec.
31,
2010
Spain Caixa Bank-Caja de
Ahorros y Pensiones de
Barcelona
Dec.
31,
2010
Sweden Nordea Bank AB Dec.
31,
2010
Sweden Skandinaviska Enskilda
Banken AB (publ)
Dec.
31,
2010
Sweden Svenska Handelsbanken Dec.
31,
2010
Sweden Swedbank AB Dec.
31,
2010
Switzerland Credit Suisse Group AG Dec.
31,
2010
Switzerland UBS AG June
30,
2011
Switzerland Zuercher Kantonalbank Dec.
31,
2010
Turkey Turkiye Garanti Bankasi
AS
Dec.
31,
2010
U.K. Barclays PLC Dec.
31,
2010
U.K. HSBC Holdings PLC Dec.
31,
2010
U.K. Lloyds Banking Group PLC June
30,
2011
U.K. Nationwide Building
Society
April
30,
2011
U.K. Standard Chartered Bank Dec.
31,
2010
U.K. The Royal Bank of
Scotland Group PLC*
Dec.
31,
2010
U.S. Bank of America Corp. Sept.
30,
2011
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
5.8 8.0 Euro 53,354 924,758 664,277
4.0 4.3 Euro 13,099 328,003 303,591
5.5 5.9 Euro 19,565 352,962 333,782
7.0 8.6 Euro 19,833 283,479 231,547
7.5 8.1 Sweden
krona
6.7 7.3 Sweden
krona
8.5 8.7 Sweden
krona
5.4 6.4 Swiss
franc
5.7 6.8 Swiss
franc
15.9 15.2 Swiss
franc
8.8 8.3 Turkish
Lira
6.8 8.2 British
pound
sterling
82,237 1,093,935 1,016,689
79,247 1,174,625 1,086,476
73,888 867,424 846,869
21,656 403,911 336,885
27,671 486,976 409,401
7,788 48,834 51,369
15,494 176,057 186,673
49,008 724,844 598,696
7.6 10.4 U.S. dollar 132,724 1,750,930 1,280,335
5.3 6.5 British
pound
sterling
6.7 6.5 British
pound
sterling
35,950 684,003 551,971
6,060 90,663 92,841
8.2 10.5 U.S. dollar 31,021 380,198 295,625
5.4 6.6 British
pound
sterling
60,027 1,113,477 903,841
7.2 9.2 U.S. dollar 147,101 2,046,574 1,605,188
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948538 | 300076937

Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
U.S. Bank of New York Mellon
Corp.
Sept.
30,
2011
U.S. BB&T Corp. Sept.
30,
2011
U.S. Capital One Financial Corp. Sept.
30,
2011
U.S. Citigroup Inc. Sept.
30,
2011
U.S. Citizens Financial Group,
Inc.
Sept.
30,
2011
U.S. Comerica Inc. Sept.
30,
2011
U.S. Fifth Third Bancorp Sept.
30,
2011
U.S. JPMorgan Chase & Co. Sept.
30,
2011
U.S. KeyCorp Sept.
30,
2011
U.S. Morgan Stanley Sept.
30,
2011
U.S. PNC Financial Services
Group
Sept.
30,
2011
U.S. Regions Financial Corp. Sept.
30,
2011
U.S. State Street Corp. Sept.
30,
2011
U.S. SunTrust Banks Inc. Sept.
30,
2011
U.S. The Goldman Sachs Group
Inc.
Sept.
30,
2011
U.S. U.S. Bancorp Sept.
30,
2011
U.S. UnionBanCal Corp. Sept.
30,
2011
U.S. Wells Fargo & Co. Sept.
30,
2011
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
4.8 5.8 U.S. dollar 14,240 297,089 245,163
8.1 8.3 U.S. dollar 14,190 175,020 171,176
7.3 8.2 U.S. dollar 18,168 247,377 220,245
6.7 8.3 U.S. dollar 125,873 1,891,330 1,513,764
11.6 12.3 U.S. dollar 13,476 116,130 109,659
9.2 8.1 U.S. dollar 6,129 66,437 76,050
8.4 8.4 U.S. dollar 11,706 138,851 138,564
6.4 8.2 U.S. dollar 146,646 2,299,875 1,794,526
10.3 10.8 U.S. dollar 9,689 94,032 90,124
8.4 9.2 U.S. dollar 57,616 687,274 627,283
8.2 8.9 U.S. dollar 31,046 378,193 347,572
7.5 8.1 U.S. dollar 8,523 112,898 105,512
6.3 7.4 U.S. dollar 12,623 199,972 169,797
8.1 8.2 U.S. dollar 13,554 167,290 165,192
7.2 7.8 U.S. dollar 69,171 967,184 884,611
8.2 10.2 U.S. dollar 27,489 333,815 270,188
9.6 9.5 U.S. dollar 8,467 88,257 88,775
7.8 9.9 U.S. dollar 112,455 1,440,588 1,134,486
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Table 3
Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores (cont.)
Note: All figures are pro forma for the new BICRA and hybrid capital criteria published in November 2011. BICRAs, economic risk scores, and sovereign ratings are as of
Nov. 30, 2011. *RBS' ratios exclude the effect of the Asset Protection Scheme. §We computed our estimated RAC ratio as of year-end 2010 by combining public or
confidential information provided on regulatory Pillar 3 data of the sector's key members: Local cooperative banks, DZ Bank Group, Deutsche Apotheker- und Aerztebank
eG, and WGZ Bank. Cross holdings and interbank placements within the group have been retreated according to our best efforts to compute an estimate for the
consolidated entity. †We computed our estimated RAC ratio as of end-year 2010 by combining public or confidential information provided on regulatory Pillar 3 data of the
group's key members: Savings banks in the States of Hesse and Thuringia and Landesbank Hessen-Thueringen Girozentrale. Cross holdings and interbank placements
within the group have been retreated according to our best efforts to compute an estimate for the consolidated entity. ‡BBVA pro forma RAC ratio at year-end 2010
includes the consolidation of stake in Turkish bank Garanti.
Risk-weighted assets assumptions for U.S. bank holding companies
To help preserve consistency, comparability, and transparency of our published RWA, we've made the following
assumptions, most of which we've based on publicly and consistently available information for the purpose of
assisting reproducibility of this study. The assumptions are nearly identical to the ones we published in "U.S. Banks'
Risk-Adjusted Capital Has Improved, But Remains Neutral To Negative For Ratings" on Jan. 18, 2011. We also
took into account confidential information, mainly regarding financial collateral and securitization exposures.
• The exposure data mostly derive from the FR Y-9C disclosures, using our criteria (see appendix A of "Bank
Capital Methodology And Assumptions," published Dec. 6, 2010).
• We also took into account assets under management and assets under custody from the 10-Q reports.
• When adjusting for tax-loss carry forwards in the numerator of the ACE-to-RWA ratio, we used the U.S.
regulators' disallowed portion of the deferred tax assets number disclosed in schedule HC-R.
• We did not make explicit adjustments for guarantees obtained.
• We used the region "world excluding U.S." to represent U.S. banks' foreign-exposure classes identified in the FR
Y-9C. We assumed other exposures were in the U.S. As of September 2010, this translated into a rating of 'A+'
for foreign sovereign exposures, a BICRA of '4' for foreign financial institutions exposures, and an economic risk
score of '3' for foreign corporate exposures. We assumed all retail exposures were domestic. We assign average
GDP-weighted BICRAs, economic risk scores, and long-term foreign-currency sovereign credit ratings to groups
of countries and regions.
• Equity exposures were split between public and private using FR Y-9C schedules HC-B 7d for public equities and
HC-F4 for private equity. We assumed all equity exposures had risk consistent with the equity market group 1 (to
which the U.S. belongs).
• We did not use any explicit adjustment for latent gains.
• We assumed that banks use the internal-model approach (value at risk) to measure all of the general risk in the
trading book and use the standardized approach to measure specific risk.
• We included information of financial collateral that trust banks provided, recognizing a mitigation of the credit
risk, especially for securities-lending portfolios. We applied haircuts (i.e., value reductions) to the financial
collateral according to table 11 (below paragraph 76) of our criteria published on Dec. 6, 2011.
• We based securitization exposures risk weights on detailed breakdowns of exposures per rating, or on our default
values disclosed in paragraph 70.
Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally
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