Fitch Ratings has been assessing the myriad of events and announcements in recent days from major banks and governments around the world. The systemic crisis that has gripped financial markets and financial institutions globally has led to significant government initiatives aimed at restoring confidence to financial markets and providing the institutions with the necessary tools to help them navigate through markets that have been volatile at best and nearly paralyzed at times in recent weeks.

Overall, Fitch views the coordinated global responses from governments and regulatory authorities as very positive and constructive. The recent government programs have been virtually unprecedented in size, scope and the level of direct intervention being taken. The magnitude of these measures is clearly a direct reflection that authorities view the problems facing markets and institutions as warranting such an unparalleled response.

Fitch notes that the major banks it rates globally continue to be relatively highly rated entities, primarily in the 'AA' and 'A' categories and 'F1' or above. The government programs have and will continue to be a key factor in Fitch's rating decisions for banks. Fitch acknowledges that recently announced governmental programs vary by country, that different financial institutions are impacted by the programs in different ways, and that individual institutions may choose to avail themselves of government assistance in varying ways. While Fitch recognizes that aspects of government programs have provided increased stability and unfettered access to funding and capital for many banks, the programs themselves do not remove all the risks that banks are facing.

While the programs have been a positive for banks, it is important to recognize that bank performance and market conditions remain quite challenged and are expected to remain so for the coming quarters. Recent financial reports by banks are serving to highlight trends in key credit fundamentals are deteriorating and that the deterioration is spreading to portfolios beyond residential real estate exposure that has been at the epicenter of the current crisis. Fitch currently views the government programs as mitigating the material downside rating risk that was building for certain banks around the world. Fitch now views the risk of multi-notch downgrades and the risk of jump to default that can accompany a rapid loss in confidence to be significantly reduced relative to just a few weeks ago.

Fitch is currently evaluating the linkage of holding company and operating company ratings in the context of how such entities have performed and navigated through the recent quarters with a look forward to how Fitch expects these entities to perform on a relative basis in future periods. Additionally, Fitch is assessing the relative performance and role of preferred and hybrid instruments. Evidence is pointing to these instruments quickly moving toward a role of equity in the face of financial challenges. Specifically, these instruments have moved to deferral or non-performance at a more rapid rate and in more cases than Fitch has expected.

All of the above reviews will take into account the rapidly evolving support environment as well as the likelihood that regulatory frameworks will also be subject to significant change in the period ahead. Although there are signs that there will be greater convergence of national frameworks for bank intervention and regulation, differences are likely to remain at the national level, and Fitch's approach will continue to recognise these differences.