Moody's Investors Service has made multiple rating actions following the publication yesterday of its new bank rating methodology. The rating actions affect 1,021 out of 1,934 banking entities rated by Moody's, including operating banks, holding companies, subsidiaries, special purpose issuance conduits, branches and other entities.
But no Australian banks are on the list for downgrades (or upgrades, for that matter), despite the generally tougher questions on the levels of bank funding, liquidity and capital that are expected for a given rating level.
Patrick Winsbury, a Moody's senior vice president for financial institutions in Australia, said that banks here are already issuing securities with Basel 3 bail-in style features, so the debate that needs to be had is whether to strengthen the resolution regime in Australia. He said this could be done in one of two ways:
- issuing individual securities with bail-in features to a level that the regulator regards as sufficient to absorb a certain stress level of loss to ensure taxpayers don't have to do pay for a bank's recapitalisation; or
- going down the route of a statutory bail-in regime.
The new rules from Moody's are more likely to directly affect banks in countries that already have a statutory bail-in regime where, under certain circumstances, bail-in must occur before anything else can happen.
"In that situation the risk to creditors needs to be thought through. In some countries, the depositors are at risk as well," Winsbury said.
"So a proposed framework is around how the risk to depositors and creditors has shifted with the introduction of those types of statutory regimes."
In the case of Australia the Financial Services Inquiry's final report is silent on the subject of a statutory bail-in and seems to favour more of a TLAC approach leaning towards the issue of more "bail-in-able" securities.