Moody’s finally realizes Tier 1 capital is equity

Is anybody else taken aback by how bluntly Moody’s is acknowledging that it’s credit ratings for financial institutions depend on a government backstop of bank debt?  From Bloomberg:

Before the credit crunch, Moody’s assumed government support for troubled banks would extend to investors in subordinated and preferred securities, not just senior creditors, according to the report. Moody’s plans to link the ratings on subordinated securities to banks’ stand-alone creditworthiness, rather than their senior unsecured grades, which take account of a degree of government support. … “With recent government interventions, investors in subordinated capital have been left to absorb losses,” the New York-based ratings company said today in a report. “Consistently, regulators have confirmed that many of these instruments are more equity-like than debt-like.”

Does anybody else think it would be interesting to learn how long ago Moody’s started assuming that the governments would always step in to absorb bank creditors’ losses, so there was no need to assess “banks’ stand-alone creditworthiness”?

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