The new study from Fitch Ratings notes that banks are nearly 10 times more likely to fail than they are to default. Bank failure is twice as likely as corporate default risk, yet the overall bank default rate is lower than the corporate default rate because of the provision of external support.
“The findings, which are based on Fitch’s 25-year history of assigning individual ratings to financial institutions, clearly show that in times of stress, banks do receive support from third parties, usually governments, reflecting their unique role in the economy and financial system,” ,said Ian Linnell, managing director of financial institutions, Europe, Middle East and Africa at Fitch. “Assessing potential support is clearly a critical rating issue. However, it is also a complex and subjective matter. Therefore we continue to view support as a potential floor, a point below which the issuer default ratings cannot fall for a given support rating.”
