Moody’s seeks comment on assessment of five counterparty risks

- Its approach to assessing swap counterparty related exposures.
- Its analysis of operational risk.
- Its assessment of commingling risk.
- Its approach to assessing risks relating to account banks and
investments.
- Its analysis of set-off risks, namely deposit related set-off.
"The proposed changes are being driven by a variety of factors," said Moody’s senior vice president Michelangelo Margaria. "Among them are specific changes in market regulation, a review of new information made available to us, observations around the historical experience of the financial crisis of the last decade and our internal periodic reviews of
our analytical approaches."
If adopted, Moody's expects that the proposed changes will mostly have limited ratings impact of one to two notches affecting approximately 210 to 220 structured finance transactions. The majority of affected transactions are based in EMEA. Moody's does not anticipate ratings of covered bonds to be impacted.
Moody's proposes as part of its RFC to consolidate the five methodology reports into one methodology document going forward with a global scope applicable to structured finance transactions and covered bonds, where relevant.
The proposed changes to its analysis of swap counterparty exposures include, amongst others, a new framework to incorporate global swap margin regulation.
"While we propose to restructure our operational risk analysis by breaking it into three schematic steps", said Moody's senior vice president Amelia Tobey. "At the same time we offer a more generic description of mitigating factors and set forth clarified criteria used
when analysing transactions with small and/or new sponsor-servicers."
Other proposed changes include a clarification to Moody's global commingling risk approach, several updates to the analysis of account banks and temporary investments and a revision to its assessment of deposit set-off risk.