Anchored to the Sovereign: How National Frameworks Compress Subnational Credit Signals Evidence from Published Standalone Credit Profiles in 20 Countries

Abstract

Abstract

International credit ratings of local and regional governments (LRGs) are read as summaries of subnational credit quality. This paper shows that they are close to a relabelling of the sovereign rating, and measures how much local information they discard. The measurement is possible because Fitch publishes, for every rated LRG, the Standalone Credit Profile (SCP) — the rating absent the sovereign constraint — together with the support notches, the rating cap and the rating floor, so the counterfactual that the sovereign-ceiling literature must estimate is observed directly, and information destruction can be computed as wedge = notch(SCP) − notch(IDR). In a panel of 169 rating actions covering 97 entities in 20 countries, 66 per cent of rated LRGs sit exactly at their sovereign and 86 per cent within one notch. The pooled figure understates the result: capped entities sit there by construction, and among uncapped entities — with no ceiling forcing anything — 51 per cent are still rated exactly at the sovereign, while standalone profiles span five to fourteen notches inside a single country. Four published instruments drive the convergence: ceiling compression, support uplift, an explicit rating floor, and framework dominance - where all national entities receive identical sub-factor assessments without triggering a cap, floor, or support. The agency's published rules and exceptions explicitly identify this mechanism, elevating eleven entities above their sovereign via a framework eligibility category grounded in constitutionally protected fiscal autonomy. This enables a direct comparison within Italy under a single agency, criteria document, and rating quarter.