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81-529: The company ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss in the event of default . Moody's Ratings rates debt securities in several bond market segments. These include government , municipal and corporate bonds ; managed investments such as money market funds and fixed-income funds; financial institutions including banks and non-bank finance companies; and asset classes in structured finance . In Moody's Ratings system, securities are assigned

162-452: A climate system that is no longer staying within a stationary range of extremes. The Intergovernmental Panel on Climate Change (IPCC) assessment framework is based on the understanding that climate risk emerges from the interaction of three risk factors: hazards , vulnerability and exposure. In this framework, climate risks are also described in five sets of major risks: Risks and uncertainties are closely related concepts. Risk

243-399: A settlement risk or counterparty credit risk ( CCR ), is a risk that a counterparty will not pay as obligated on a bond , derivative , insurance policy , or other contract. Financial institutions or other transaction counterparties may hedge or take out credit insurance or, particularly in the context of derivatives, require the posting of collateral. Offsetting counterparty risk

324-564: A decision to pull out of investment in risky markets may increase climate vulnerability for many communities. The Intergovernmental Panel on Climate Change (IPCC) assessment framework is based on the understanding that climate risk emerges from the interaction of three risk factors: hazards , vulnerability and exposure. One of primary roles of the IPCC, which was created by the United Nations Environment Programme (UNEP) and

405-494: A general move toward greater transparency. The agency faced a similar complaint in the mid-2000s from Hannover Re , a German insurer that lost $ 175 million in market value when its bonds were lowered to "junk" status. In 2005, unsolicited ratings were at the center of a subpoena by the New York Attorney General 's office under Eliot Spitzer , but again no charges were filed. Following the 2007–2008 financial crisis ,

486-550: A higher price for higher-risk customers and vice versa. With revolving products such as credit cards and overdrafts, the risk is controlled through the setting of credit limits. Some products also require collateral , usually an asset that is pledged to secure the repayment of the loan. Credit scoring models also form part of the framework used by banks or lending institutions to grant credit to clients. For corporate and commercial borrowers, these models generally have qualitative and quantitative sections outlining various aspects of

567-684: A measurement. Moody's and nine other agencies (later five, due to consolidation) were identified by the SEC as "nationally recognized statistical ratings organizations" (NRSROs) for broker-dealers to use in meeting these requirements. The 1980s and beyond saw the global capital market expand; Moody's opened its first overseas offices in Japan in 1985, followed by offices in the United Kingdom in 1986, France in 1988, Germany in 1991, Hong Kong in 1994, India in 1998 and China in 2001. The number of bonds rated by Moody's and

648-540: A neighbouring country, or from one country to distant regions. Risks can also cascade and have knock-on effects elsewhere, across multiple borders and sectors. For example, an impact of the floods in Thailand in 2011 was disruption to manufacturing supply chains affecting the automotive sector and electronics industry in Japan, Europe and the USA. The different stages in a supply chain, where risks can be transmitted and managed,

729-434: A number of circumstances, for example: To reduce the lender's credit risk, the lender may perform a credit check on the prospective borrower, may require the borrower to take out appropriate insurance, such as mortgage insurance , or seek security over some assets of the borrower or a guarantee from a third party. The lender can also take out insurance against the risk or on-sell the debt to another company. In general,

810-434: A possible conflict of interest , supposing that rating agencies may artificially boost the rating of a given security in order to please the issuer. The SEC recently acknowledged, however, in its September 30, 2011 summary report of its mandatory annual examination of NRSROs that the subscriber-pays model under which Moody's operated prior to adopting the issuer pays model also "presents certain conflicts of interest inherent in

891-465: A rating from Aaa to C, with Aaa being the highest quality and C the lowest quality. Moody's was founded by John Moody in 1909, to produce manuals of statistics related to stocks and bonds and bond ratings. In 1975, the company was identified as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S. Securities and Exchange Commission . Following several decades of ownership by Dun & Bradstreet , Moody's Investors Service became

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972-499: A separate company in 2000. Moody's Corporation was established as a holding company. On 6 March 2024, Moody's Investors Service was renamed to Moody's Ratings. Together, Moody's, S&P and Fitch are sometimes referred to as the Big Three credit rating agencies. While credit rating agencies are sometimes viewed as interchangeable, Moody's, S&P and Fitch in fact rate bonds differently; for example, S&P and Fitch Ratings measure

1053-485: A set or range of possible outcomes, which may also include probabilities. The IPCC uses qualitative rating scales for uncertainty which may be based on quantitative results or expert judgement. Uncertainty is also used in a broader way to describe general lack of knowledge about the world and of possible outcomes (epistemic uncertainty). Some such outcomes are inherently unpredictable (aleatory uncertainty). It can also refer to different framings or understandings about

1134-733: A sole basis for investment decisions. In addition, its ratings don't speak to market price, although market conditions may impact credit risk. Moody's traces its history back to two publishing companies established by John Moody , the inventor of modern bond credit ratings . In 1900, Moody published his first market assessment, called Moody's Manual of Industrial and Miscellaneous Securities , and established John Moody & Company. The publication provided detailed statistics relating to stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities, and food companies. It experienced early success, selling out its first print run in its first two months. By 1903, Moody's Manual

1215-410: Is a "risk-sensitive methodology", i.e. conscious of asset class and hedging , that differentiates between margined and non-margined trades and recognizes netting benefits ; issues insufficiently addressed under the preceding frameworks. Lenders mitigate credit risk in a number of ways, including: Climate risk Climate risk is the potential for problems for societies or ecosystems from

1296-547: Is a United States government interagency ongoing effort on climate change science conducted under the auspices of the Global Change Research Act of 1990 . The fourth edition 'Volume II: Impacts, Risks, and Adaptation in the United States' was published in 2018. The UK Government is required, under the 2008 Climate Change Act , to publish a Climate Change Risk Assessment every five years. This assessment sets out

1377-550: Is a concept that describes how strongly people or ecosystems are likely to be affected by climate change . Its formal definition is the " propensity or predisposition to be adversely affected" by climate change. It can apply to humans and also to natural systems (or ecosystems). Issues around the capacity to cope and adapt are also part of this concept. Vulnerability is a component of climate risk. It differs within communities and also across societies, regions, and countries. It can increase or decrease over time. Vulnerability

1458-605: Is an example of a risk pathway . Risk pathways, via which impacts are transmitted, include trade and finance networks, flows of people, resource flows such as water or food, and ecosystem connections. International risks potentially could affect small trade-dependent countries especially those dependent on food imports. They could also affect richer, developed nations that are relatively less exposed to direct risks from climate change. In addition, there are potential consequences from adaptation responses initiated in one country that might transmit or alter risks elsewhere. For example,

1539-514: Is an increasing function of debt service ratio, import ratio, the variance of export revenue and domestic money supply growth. The likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains. Debt rescheduling likelihood can increase if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries/investors. A counterparty risk, also known as

1620-511: Is another aspect of vulnerability of communities and livelihoods to climate change. The biggest livelihood-related risks stem from losses of agricultural yields, impacts on human health and food security, destruction of homes, and loss of income. There are also risks to fish and livestock that livelihoods depend on. Some communities and livelihoods also face risks of irreversible losses and challenges to development, as well as more complex disaster risks. The consequences of climate change are

1701-858: Is considered an important climate change adaptation measure. Climate risks can be categorised into natural environment, infrastructure, human health, the built environment, business and international. The IPCC Sixth Assessment Report considers risks within important sectors affected by climate change, like agriculture, water, cities, ecosystems, health and livelihoods. It also considers sets of major risks across these sectors. Risk categories are often assessed in relation to multiple hazards and impacts, but hazard-specific assessments are often also available, eg. flood risk or heatwave risk assessment. The main risks to ecosystems from climate change are biodiversity loss, ecosystem structure change, increased tree mortality, increased wildfire, and ecosystem carbon losses. These risks are linked. Loss of species can increase

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1782-432: Is especially so during periods of lower rainfall. These key risks differ greatly between cities, and between different groups of people in the same city. Climate change affects livelihoods and living conditions in significant ways. These include access to natural resources and ecosystems, land and other assets.  Access to basic infrastructure services such as water and sanitation, electricity, roads, telecommunications

1863-402: Is generally a bigger problem for people in low-income countries than for those in high-income countries. Climate change adaptation and climate change mitigation can reduce climate-related risks. These two types of climate action can be complementary and can result in synergies, and thus more successful results. Climate risk insurance is a type of insurance designed to mitigate

1944-458: Is no longer staying within a stationary range of extremes. Hence, climate change impacts are anticipated to increase for the coming decades. There are also substantial differences in regional climate projections. These two aspects make it complicated to understand current and future climate risk around the world. Scientists use various climate change scenarios when they carry out climate risk analysis. The interaction of three risk factors define

2025-563: Is not always possible, e.g. because of temporary liquidity issues or longer-term systemic reasons. Further, counterparty risk increases due to positively correlated risk factors; accounting for this correlation between portfolio risk factors and counterparty default in risk management methodology is not trivial. The capital requirement here is calculated using SA-CCR, the standardized approach for counterparty credit risk . This framework replaced both non-internal model approaches - Current Exposure Method (CEM) and Standardised Method (SM). It

2106-509: Is projected to increase the variability of rain. There will be impacts on water quality as well as quantity. Floods can wash pollutants into water bodies and damage water infrastructure. In many places, particularly in the tropics and sub-tropics, there are longer dry spells and droughts, sometimes over consecutive years. These have contributed to drier soil conditions, lower groundwater tables and reduced or changed flows of rivers. There are risks to ecosystems, and across many water-using sectors of

2187-622: Is the possibility of losing a lender holds due to a risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest , disruption to cash flows , and increased collection costs . The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants. Losses can arise in

2268-420: Is the potential for negative consequences for society or ecosystems from the impacts of climate change . Risk is used mainly to talk about the potential effects of climate change, but it may also result from the measures that we take to respond to those changes. The definition also recognises the different values and preferences that people have towards the human or ecological systems at risk. Risk assessment

2349-510: Is the qualitative and/or quantitative scientific estimation of risks. Risk perception is the personal judgement that people make about the characteristics and severity of a risk. Climate risks are increasingly felt in all regions of the world, and they are especially visible in the growing number of disasters that are driven by climatic events. Many of these risks and impacts are expected to increase in future, and therefore are an increasing concern. Risk assessments are based on responses of

2430-419: Is “the potential” for a negative outcome, so it implies uncertainty or incomplete information. However, risks are more often understood in a more context-specific way. Each component of climate risk - hazards, exposure and vulnerability -  may be uncertain in terms of the magnitude and likelihood of occurrence. Assessment of the risk includes a set of measured uncertainties. These are usually given in terms of

2511-611: The 2007–2008 financial crisis . In 1998, Dun & Bradstreet sold the Moody's publishing business to Financial Communications (later renamed Mergent ). Following several years of rumors and pressure from institutional shareholders, in December 1999 Moody's parent Dun & Bradstreet announced it would spin off Moody's Investors Service into a separate publicly traded company . Although Moody's had fewer than 1,500 employees in its division, it represented about 51% of Dun & Bradstreet profits in

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2592-465: The World Economic Forum ranked climate change as the biggest risk to economy and society. Companies face reputational risks as well as financial risks . Companies publicly criticised for their environmental policies or high emissions might lose customers because of negative reputation. Climate change is affecting the overall and seasonal availability of water across regions. Climate change

2673-665: The World Meteorological Organization (WMO) in 1988, is to evaluate climate risks and explore strategies for their prevention and publish this knowledge each year in a series of comprehensive reports. The most recent report to consider the widest set of climate risks across nature and human activity was the Sixth Assessment Report Working Group II report Impacts, Adaptation and Vulnerability , published in 2022. The assessed levels of risk generally increased compared to previous reports, whilst

2754-443: The commercial mortgage-backed securities (CMBS) market in 2007. In April 2013, Moody's, along with Standard & Poor's and Morgan Stanley , settled fourteen lawsuits filed by groups including Abu Dhabi Commercial Bank and King County, Washington . The lawsuits alleged that the agencies inflated their ratings on purchased structured investment vehicles. In January 2017, Moody's agreed to pay nearly $ 864 million to settle with

2835-431: The commercial paper held by money market funds . The SEC has designated seven other firms as NRSROs, including, for example, A. M. Best , which focuses on obligations of insurance companies . Companies with which Moody's competes in specific areas include investment research company Morningstar, Inc. and publishers of financial information for investors such as Thomson Reuters and Bloomberg L.P. Especially since

2916-530: The impacts of climate change . The assessment of climate risk is based on formal analysis of the consequences, likelihoods and responses to these impacts. Societal constraints can also shape adaptation options. There are different values and preferences around risk, resulting in differences of risk perception. Common approaches to risk assessment and risk management strategies are based on analysing hazards . This can also be applied to climate risk although there are distinct differences: The climate system

2997-431: The late-2000s global recession . The existence of such risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country. Firstly one should consider the sovereign risk quality of the country and then consider the firm's credit quality. Five macroeconomic variables that affect the probability of sovereign debt rescheduling are: The probability of rescheduling

3078-514: The urban heat island effect is likely to get worse. Population growth and land use change will influence human health and productivity risks in cities. Urban flooding is another key risk. This is especially the case in coastal settlements where flood risks are exacerbated by sea-level rise and storm surges. A further set of risks arises from reduced water availability. When supply cannot meet demand from expanding settlements, urban residents become exposed to water insecurity and climate impacts. This

3159-504: The Big Three agencies grew substantially as well. As of 1997, Moody's was rating about $ 5 trillion in securities from 20,000 U.S. and 1,200 non-U.S. issuers. The 1990s and 2000s were also a time of increased scrutiny, as Moody's was sued by unhappy issuers and investigation by the U.S. Department of Justice , as well as criticism following the Enron scandal , the U.S. subprime mortgage crisis , and

3240-757: The Department of Justice, other state authorities and Washington. A fine of $ 437.5 million would be paid to the DOJ , and the remaining $ 426.3 million penalty would be split among 21 states and the District of Columbia . Then California Attorney General Kamala Harris and then Missouri Attorney General Joshua Hawley were among the state signatories to the settlement. In March 2013 Moody's Investors Service published their report entitled Cash Pile Grows 10% to $ 1.45 Trillion; Overseas Holdings Continue to Expand in their Global Credit Research series, in which they examined companies they rate in

3321-623: The Financial Crisis Inquiry Commission stated: "There was a clear failure of corporate governance at Moody's, which did not ensure the quality of its ratings on tens of thousands of mortgage-backed securities and CDOs." Faced with having to put more capital against lower rated securities, investors such as banks, pension funds and insurance companies sought to sell their residential mortgage-backed securities (RMBS) and collateralized debt obligation (CDO) holdings. The value of these securities held by financial firms declined, and

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3402-420: The SEC adopted new rules for the rating agency industry, including one to encourage unsolicited ratings. The intent of the rule is to counteract potential conflicts of interest in the issuer-pays model by ensuring a "broader range of views on the creditworthiness" of a security or instrument. The "issuer pays" business model adopted in the 1970s by Moody's and other rating agencies has been criticized for creating

3483-665: The U.S. bond market and rating agencies developed further in the 1930s. As the market grew beyond that of traditional investment banking institutions, new investors again called for increased transparency, leading to the passage of new, mandatory disclosure laws for issuers, and the creation of the Securities and Exchange Commission (SEC). In 1936 a new set of laws were introduced, prohibiting banks from investing in "speculative investment securities" ("junk bonds", in modern terminology) as determined by "recognized rating manuals". Banks were permitted only to hold "investment grade" bonds, following

3564-513: The US non-financial corporate sector (NFCS). According to their report, by the end of 2012 the US NFCS held "$ 1.45 trillion in cash", 10% more than in 2011. At the end of 2011, US NFCS held $ 1.32 trillion in cash which was already a record level. "Of the $ 1.32 trillion for all the rated companies, Moody's estimates that $ 840 billion, or 58% of the total cash, is held overseas." Credit risk Credit risk

3645-453: The United States their credit ratings are used in regulation by the U.S. Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations (NRSROs) for a variety of regulatory purposes. Among the effects of regulatory use was to enable lower-rated companies to sell bond debt for the first time; their lower ratings merely distinguished them from higher-rated companies, rather than excluding them altogether, as had been

3726-500: The case. However, another aspect of mechanical use of ratings by regulatory agencies has been to reinforce "pro-cyclical" and "cliff effects" of downgrades. In October 2010, the Financial Stability Board (FSB) created a set of "principles to reduce reliance" on credit rating agencies in the laws, regulations and market practices of G-20 member countries . Since the early 1990s, the SEC has also used NRSRO ratings in measuring

3807-520: The company as Moody's Investors Service. Other rating companies followed over the next few years, including the antecedents of the " Big Three " credit rating agencies: Poor's in 1916, Standard Statistics Company in 1922, and the Fitch Publishing Company in 1924. Moody's expanded its focus to include ratings for U.S. state and local government bonds in 1919 and, by 1924, Moody's rated nearly the entire U.S. bond market. The relationship between

3888-475: The credit rating business significantly more profitable. In 2005 Moody's estimated that 90% of credit rating agency revenues came from issuer fees. The end of the Bretton Woods system in 1971 led to the liberalization of financial regulations, and the global expansion of capital markets in the 1970s and 1980s. In 1975, the SEC changed its minimum capital requirements for broker-dealers , using bond ratings as

3969-460: The credit risk of particular securities. This form of third party analysis is particularly useful for smaller and less sophisticated investors, as well as for all investors to use as an external comparison for their own judgments. Credit rating agencies also play an important role in the laws and regulations of the United States and several other countries, such as those of the European Union . In

4050-563: The decision was upheld on appeal. In the mid-1990s, the U.S. Justice Department 's antitrust division opened an investigation to determine whether unsolicited ratings amounted to an illegal exercise of market power , however the investigation was closed with no antitrust charges filed. Moody's has pointed out that it has assigned unsolicited ratings since 1909, and that such ratings are the market's "best defense against rating shopping" by issuers. In November 1999, Moody's announced it would begin identifying which ratings were unsolicited as part of

4131-398: The degree of climate risk. They are hazards , vulnerability and exposure. There are various approaches to climate risk management . One example is climate risk insurance . This is a type of insurance designed to mitigate the financial and other risk associated with climate change, especially phenomena like extreme weather . The IPCC Sixth Assessment Report defines climate risk

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4212-409: The early 2000s, Moody's frequently makes its analysts available to journalists, and issues regular public statements on credit conditions. Moody's, like S&P, organizes public seminars to educate first-time securities issuers on the information it uses to analyze debt securities. Moody's purchased a controlling share in the " climate risk data firm" Four Twenty Seven in 2019. According to Moody's,

4293-487: The economy. Agriculture is likely to be affected by changes in water availability, putting food security at risk. Irrigation has often contributed to groundwater depletion and changes in the water cycle. It can sometimes make a drought worse. International climate risks are climate risks that cross national borders. Sometimes the impacts of climate change in one country or region can have further consequences for people in other countries. Risks can spread from one country to

4374-451: The end of the crisis, Moody's downgraded 83% of all the 2006 Aaa mortgage backed security tranches and all of the Baa tranches. In June 2013, Moody's Investor Service has warned that Thailand's credit rating may be damaged due to an increasingly costly rice-pledging scheme which lost 200 billion baht ($ 6.5 billion) in 2011–2012. Moody's, along with the other major credit rating agencies, is often

4455-477: The fact that subscribers, on whom the NRSRO relies, have an interest in ratings actions and could exert pressure on the NRSRO for certain outcomes". Other alleged conflicts of interest, also the subject of a Department of Justice investigation the mid-1990s, raised the question of whether Moody's pressured issuers to use its consulting services upon threat of a lower bond rating. Moody's has maintained that its reputation in

4536-429: The financial and other risk associated with climate change, especially phenomena like extreme weather . The insurance is often treated as a type of insurance needed for improving the climate resilience of poor and developing communities. It provides post-disaster liquidity for relief and reconstruction measures while also preparing for the future measures in order to reduce climate change vulnerability . Insurance

4617-567: The higher the risk, the higher will be the interest rate that the debtor will be asked to pay on the debt. Credit risk mainly arises when borrowers are unable or unwilling to pay. A credit risk can be of the following types: Significant resources and sophisticated programs are used to analyze and manage risk. Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit (or not) accordingly. They may use in-house programs to advise on avoiding, reducing and transferring risk. They also use

4698-529: The highest to the lowest tier". In May 2008, Moody's proposed adding "volatility scores and loss sensitivities" to its existing rankings. Although the rating agencies were criticized for "technical failings and inadequate resources", the FSB stated that the agencies' "need to repair their reputation was seen as a powerful force" for change. Moody's has in fact lost market share in certain sectors due to its tightened rating standards on some asset-backed securities, for example

4779-597: The impacts were found to have been on the high end of what had been expected. The European Climate Risk Assessment (EUCRA) will assess current and future climate change impacts and risks relating to the environment, economy and wider society in Europe. The European Commission’s Directorate-General for Climate Action and the EEA lead the preparation. The EUCRA is expected to be published in Spring 2024. The National Climate Assessment (NCA)

4860-452: The judgment of Moody's, along with Standard, Poor's and Fitch. In the decades that followed, state insurance regulators approved similar requirements. In 1962, Moody's Investors Service was bought by Dun & Bradstreet , a firm engaged in the related field of credit reporting , although they continued to operate largely as independent companies. In the late 1960s and 1970s, commercial paper and bank deposits began to be rated. As well,

4941-402: The major agencies began charging the issuers of bonds as well as investors — Moody's began doing this in 1970 — thanks in part to a growing free rider problem related to the increasing availability of inexpensive photocopy machines , and the increased complexity of the financial markets. Rating agencies also grew in size as the number of issuers grew, both in the United States and abroad, making

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5022-599: The market for new subprime securitizations dried up. Some academics and industry observers have argued that the rating agencies' mass downgrades were part of the " perfect storm " of events leading up to the 2007–2008 financial crisis . In 2008, a study group established by the Committee on the Global Financial System (CGFS), a committee of the Bank for International Settlements , found that rating agencies had underestimated

5103-499: The market is the balancing factor, and a 2003 study, covering 1997 to 2002, suggested that "reputation effects" outweighed conflicts of interest. Thomas McGuire, a former executive vice president, said in 1995 that: "[W]hat's driving us is primarily the issue of preserving our track record. That's our bread and butter". In March 2021, Moody's reached a settlement with the European Union regarding alleged conflicts of interest. Moody's

5184-438: The most severe for the poorest populations. These are disproportionately more exposed to hazards such as temperature extremes and droughts. They usually have fewer resources and assets and less access to funding, support and political influence. There are other forms of disadvantage due to discrimination, gender inequalities and through lack of access to resources This includes people with disabilities or minority groups. In 2020

5265-401: The previous 20 years, during which time housing prices had been rising, mortgage delinquencies very low, and nontraditional mortgage products a very small niche of the market. On July 10, 2007, in "an unprecedented move", Moody's downgraded 399 subprime mortgage-backed securities that had been issued the year before. Three months later, it downgraded another 2506 tranches ($ 33.4 billion). By

5346-509: The probability that a security will default, while Moody's ratings seek to measure the expected losses in the event of a default. All three operate worldwide, maintaining offices on six continents, and rating tens of trillions of dollars in securities. However, only Moody's Corporation is a free-standing company. Moody's Ratings and its close competitors play a key role in global capital markets as three supplementary credit analysis provider for banks and other financial institutions in assessing

5427-446: The purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged". To each of its ratings from Aa through Caa, Moody's appends numerical modifiers 1, 2 and 3; the lower the number, the higher-end the rating. Aaa, Ca and C are not modified this way. As Moody's explains, its ratings are "not to be construed as recommendations", nor are they intended to be

5508-546: The risk including, but not limited to, operating experience, management expertise, asset quality, and leverage and liquidity ratios , respectively. Once this information has been fully reviewed by credit officers and credit committees, the lender provides the funds subject to the terms and conditions presented within the contract (as outlined above). Sovereign credit risk is the risk of a government being unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. Many countries have faced sovereign risk in

5589-668: The risks and opportunities facing the UK from climate change. The third assessment published in 2022 identified 61 risks cutting across multiple sectors. These risks were categorised into natural environment, infrastructure, human health, the built environment, business and international. The Climate Change Response (Zero Carbon) Amendment Act (amended 2019) includes the publication of a National Climate Change Risk Assessment, every six years. The First Assessment (2020) grouped risks according to five value domains: human, natural environment, economy, built environment and governance. The assessment details

5670-835: The risks of flooding on nearby shorelines and islands. Ocean acidification attributed to climate change drives change in coral reefs and other ecosystems such as rocky shores and kelp forests. Climate change-related risks to health include direct risks from extreme weather such as cold waves, storms, or prolonged high temperatures. There are also indirect risks such as mental health impacts of undernutrition or displacement caused by extreme weather. Similarly there are mental health risks from loss of access to green spaces, reduced air quality, or from anxiety about climate change. There are further risks from changes in conditions for transmission of infectious diseases. Malaria and dengue are particularly climate-sensitive. Rising temperatures and heatwaves are key risks for cities. With warmer temperatures

5751-489: The risks to ecosystem health. Wildfire is an increasing risk for people as well as to ecosystems in many parts of the world. Wildfires and increased pest infestations due to climate change caused much of the recent tree mortality in North America. Risks to seas and coastal areas include coral bleaching linked with ocean warming . This can change the composition of ecosystems. Coral bleaching and mortality also increase

5832-413: The school district of Jefferson County, Colorado sued Moody's, claiming the unsolicited assignment of a "negative outlook" to a 1993 bond issue was based on Jefferson County having selected S&P and Fitch to do its rating. Moody's rating raised the issuing cost to Jefferson County by $ 769,000. Moody's argued that its assessment was "opinion" and therefore constitutionally protected; the court agreed, and

5913-601: The severity of the subprime mortgage crisis , as had "many market participants". According to the CGFS, significant contributing factors included "limited historical data" and an underestimation of "originator risk" factors. The CGFS also found that agency ratings should "support, not replace, investor due diligence" and that agencies should provide "better information on the key risk factors" of structured finance ratings. In October 2007, Moody's further refined its criteria for originators, "with loss expectations increasing significantly from

5994-657: The subject of criticism from countries whose public debt is downgraded, generally claiming increased cost of borrowing as a result of the downgrade. Examples of sovereign debt downgrades that attracted significant media attention at the time include Australia in the 1980s, Canada and Japan in the 1990s, Thailand during the 1997 Asian financial crisis , and Portugal in 2011 following the European sovereign debt crisis . Moody's has occasionally faced litigation from entities whose bonds it has rated on an unsolicited basis, and investigations concerning such unsolicited ratings. In October 1995,

6075-634: The third party provided intelligence. Nationally recognized statistical rating organizations provide such information for a fee. For large companies with liquidly traded corporate bonds or Credit Default Swaps, bond yield spreads and credit default swap spreads indicate market participants assessments of credit risk and may be used as a reference point to price loans or trigger collateral calls. Most lenders employ their models ( credit scorecards ) to rank potential and existing customers according to risk, and then apply appropriate strategies. With products such as unsecured personal loans or mortgages, lenders charge

6156-540: The world (ambiguity) including different scientific understandings. There are many types of sources of uncertainty. Unlike risk, uncertainty does not always carry negative connotations. Risk is subcategory of uncertainty that is considered to make potential issues and problems more manageable. Risk is a term used widely across different management practice areas. Examples are business , economics , environment , finance , information technology , health , insurance , safety , and security . Climate change vulnerability

6237-743: The year before the announcement. The spin-off was completed on September 30, 2000, and, in the half decade that followed, the value of Moody's shares improved by more than 300%. Structured finance went from 28% of Moody's revenue in 1998 to almost 50% in 2007, and "accounted for pretty much all of Moody's growth" during that time. According to the Financial Crisis Inquiry Report , during the years 2005, 2006, and 2007, rating of structured finance products such as mortgage-backed securities made up close to half of Moody's rating revenues. From 2000 to 2007, revenues from rating structured financial instruments increased more than fourfold. However, there

6318-615: Was a nationally recognized publication. Moody was forced to sell his business, due to a shortage of capital, when the Panic of 1907 fueled several changes in the markets. Moody returned in 1909 with a new publication focused solely on railroad bonds, Analysis of Railroad Investments , and a new company, Moody's Analyses Publishing Company. While Moody acknowledged that the concept of bond ratings "was not entirely original" with him—he credited early bond rating efforts in Vienna and Berlin as inspiration—he

6399-546: Was fined 3.7 million euros ($ 4.35 million). The 2007–2008 financial crisis led to increased scrutiny to credit rating agencies' assessments of complex structured finance securities. Moody's and its close competitors were subject to criticism following large downgrade actions beginning in July 2007. According to the Financial Crisis Inquiry Report, 73% of the mortgage-backed securities Moody's had rated triple-A in 2006 were downgraded to junk by 2010. In its "Conclusions on Chapter 8",

6480-404: Was some question about the models Moody's used to give structured products high ratings. In June 2005, shortly before the subprime mortgage crisis, Moody's updated its approach for estimating default correlation of non-prime/nontraditional mortgages involved in structured financial products like mortgage-backed securities and Collateralized debt obligations . Its new model was based on trends from

6561-399: Was the first to publish them widely, in an accessible format. Moody was also the first to charge subscription fees to investors. In 1913 he expanded the manual's focus to include industrial firms and utilities; the new Moody's Manual offered ratings of public securities, indicated by a letter-rating system borrowed from mercantile credit-reporting firms. The following year, Moody incorporated

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