The incidents of defaults among financial institutions during the recent financial crisis was unprecedented, according to Moody's latest annual analysis of defaults and recoveries.
The period 2008-2010 saw 111 financial companies default, including 72 debt issuers holding $318 billion of bonds and loans in the 2008-2010 period.

By comparison, there were only 96 defaults, affecting $46 billion of debt, of Moody's-rated financial companies in the period 1983 -- 2007. Of these, 36 defaults took place during the U.S. Savings and Loans Crisis of 1989-1991, affecting $6 billion of debt. "Historically, defaults in the financial sector were fairly low except during the Savings and Loan crisis," says Sharon Ou, Assistant Vice President at Moody's Investors Service who authored the report.
"Financial institution defaults during the recent crisis were unprecedented both in number and volume."

The default rate for all Moody's-rated financial institutions rose sharply during 2008-2009 and reached its cyclical peak of 2.7% in August  2009, according to the Moody's report. It surpassed the previous record of 2.3% set during the Savings & Loan Crisis. While relatively fewer
financial institutions are speculative grade, among those firms the default rate topped out at 11.5% during the recent crisis, below the 1989-1991 peak of 19.5% when there were far fewer speculative-grade-rated financial issuers.

In addition to being at unprecedented levels, defaults during the recent crisis have also been more globally distributed. During the crisis more than half of the financial institutions that defaulted were located in Europe, a region that historically had seen very few financial institution defaults.

Specifically, during the past three years 56% of defaults have been located in Europe, compared to only 6% before 2008. About half the recent defaults were Ukrainian banks, which imposed deposit freezes in October 2008. In contrast to Europe, North America saw its share drop to only 37% in this cycle relative to 79% before 2008.

The recent financial crisis also saw a unique phenomenon in credit differentiation among various classes of debt, which was in part due to different levels of support governments offered to senior debt liabilities versus junior ones.

Recovery rates on defaulted bonds during the crisis have held up surprisingly well, boosted by 15 distressed exchanges. For example, the average recovery rate for senior unsecured bonds has been 35.2% during 2008-2010, which is just slightly off the 1983-2007 average of 39.4%. Financial institutions engaged in distressed exchanges during the recent crisis, which propped up the recovery rate.

Looking into 2011, Moody's Credit Transition Model (CTM), which forecasts rating transitions, predicts that the default rate among speculative-grade financial institutions which issue debt will stabilize
under the baseline economic scenario to a range of 1.5% - 3.0%. Under a more pessimistic scenario, CTM forecasts the default rate rebounding from its current 3.0% level to 6.5%.

Available on Moodys.com "Defaults and Recoveries for Financial Institution Debt Issuers, 1983-2010" documents the default, recovery and rating transitions of Moody's-rated financial institutions since 1983.