Gauging on the Performance of Top 1,000 Banks/G-SIBs/Investment Banks in the World via Rating Transition Matrices

Abstract

Despite the prevalence of commercial banks’ rankings by The Banker, yet, no research has been undertaken to gauge on the transitional performance of these banks. This study attempts to fulfil such a research gap by focusing on finer rating categories under an interval gap of 50 banks, a time horizon of one year under a full time spanning from 2010 to 2020. A novel technique is deployed, namely rating transition matrices (RTMs) to gauge on the transition of ratings of banks over time. Findings show that probabilities assigned to unchanged ratings are relatively more pronounced relative to those attached to changed ratings. Evidence is found as to most banks found in the list of the top 50 banks being able to preserve their rating category over a decade with COVID-19 entailing no major effects on their RTMs. Policy wise, the Financial Stability Board could consider the full list of top 50 banks as globally systemically important banks. Absence of leapfrogging in RTMs substantiates a rather ‘less intrusive’ nature of banking business in the world.