http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Fitch Ratings has published a criteria report on the rating of financial institution subsidiaries and holding companies. Specifically, the criteria report applies to the ratings of:

--Financial institutions (FIs, i.e. banks or other financial service companies), which are subsidiaries of either banks or non-bank corporates (including insurance companies);

--Holding companies that own a bank, which may or may not be the holdco's main operating subsidiary.

The new criteria report consolidates and replaces the following criteria reports, which have been withdrawn:

--Rating Foreign Banking Subsidiaries Higher Than Parent Banks or Bank Holding Companies' (June 2012);

--Rating Linkages in Nonbank Financial Subsidiary Relationships (November 2011);

--'Bank Holding Companies' (August 2011).

In addition, the criteria report sets out in greater detail than previously Fitch's approach to rating subsidiary banks. Fitch expects any rating changes resulting from the introduction of the new criteria to be quite limited in both number of scope. This is because the new criteria report largely reflects (i) Fitch's existing practices for rating bank subsidiaries, and (ii) the approaches described in the aforementioned withdrawn criteria reports.

Fitch's ratings of FI subsidiaries of banks usually factor in a high probability of support from parent institutions. This reflects the fact that performing parent banks have very rarely allowed FI subsidiaries to default. It also considers the often high level of integration between parent banks and subsidiaries, and owners' typically strong business, financial and reputational incentives to avoid subsidiary defaults.

In accordance with the new criteria report, an FI subsidiary's long-term Issuer Default Rating (IDR) may be equalised with its parent bank where Fitch views the subsidiary as 'core'. A 'strategically important' subsidiary is likely to be rated one to two notches below its parent, and a subsidiary of 'limited importance' at least two notches lower.

In determining the notching, Fitch will also consider the subsidiary's integration with its parent, where the subsidiary is incorporated, the relative size of parent and subsidiary, the parent's stake, any support commitments, and the parent's track record of support. In addition, high country risks in the subsidiary's host market - specifically, the potential for the local sovereign to impose payment restrictions - can cause the subsidiary's IDRs to be capped at much lower levels than those of the parent.

Non-bank parents that are prudentially regulated (e.g. insurance companies) or whose FI subsidiaries support the parent's core business (e.g. captive car lenders, or banks acting as group treasuries) are likely to have a higher propensity to support FI subsidiaries than corporate parents whose subsidiaries are less core to operations.

Long-Term IDRs of bank holding companies (BHCs) will usually be equalised with, or rated one notch lower than, their main bank subsidiaries. The nature of group regulation, the extent of BHC double leverage and the materiality and credit profiles of non-bank subsidiaries will be key factors in determining notching.

Additional information is available at www.fitchratings.com.

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