N°25-63: Stickiness in Bank Credit Ratings

We provide new evidence on the behavioral dynamics of credit rating agencies (CRAs) by introducing the concept of asymmetric stickiness in bank credit ratings. Using a comprehensive global dataset covering over 750 banks across 59 countries from 1988 to 2015, we develop a novel empirical framework to measure the extent to which CRAs delay upgrades versus downgrades. Our findings reveal that upgrades are significantly stickier than downgrades across all three major CRAs (Moody's, S&P, and Fitch). Quantitatively, upgrades are on average 3.5 times more persistent than downgrades across all specifications, with the effect most pronounced for Moody's and Fitch. Second, stickiness is not uniform, as Moody's and Fitch ratings are more persistent, particularly for high-rated banks. We further document a new behavioral pattern we term pre-downgrade conservatism, where CRAs assign more conservative ratings immediately before downgrades. These results suggest strategic behavior aimed at preserving reputational capital and mitigating regulatory backlash. We also identify structural breaks in rating behavior coinciding with the 2008 global financial crisis, indicating shifts in CRA methodologies over time. Our results have important implications for the effectiveness of external ratings as supervisory tools and for the procyclicality of credit supply.