Moody’s Investors Service announced that it is considering refinements to its use of “joint default analysis” as part of its bank rating methodology.

“Having consulted with market participants, Moody’s is assessing ways of applying more qualitative judgment to modify formulaic external support assumptions and their effect on bank ratings under JDA,” it explained.

Moody’s said that it expects that the refinement would likely affect prospective bank ratings, and a select number of recently upgraded banks, where there is substantial divergence between the bank’s financial strength and its debt and deposit ratings. JDA rating revisions will resume on March 16.

On March 2, Moody’s announced upgrades to its ratings of the big six Canadian banks, and the Caisse centrale Desjardins, largely on the basis that they are likely “too big to fail” according to its JDA.

“Market participants have been generally supportive of the analytical principles underlying JDA, which explicitly takes into account sources of external support that can serve to prevent bank defaults,” said Chris Mahoney, chairman of Moody’s Credit Policy Committee. “However, an overly rigorous application of the approach can result in ratings that insufficiently differentiate on the basis of banks’ intrinsic credit fundamentals, and are therefore inconsistent with the expectations of users of our rating system. Accordingly, we are considering refinements to the JDA methodology that would address this issue.”

Mahoney added that, “Moody’s remains committed to improving the accuracy, transparency, and utility of our ratings. The application of joint default analysis supports our efforts in this regard.”