Fitch Ratings is proposing to introduce a new derivative counterparty rating for banks that aims to assess banks’ vulnerability to derivatives defaults.
The new metric is being driven by developments in bank resolution frameworks, the rating agency said Thursday. As a result, different types of bank creditors may be treated differently in a resolution process.
“Being able to treat even equally ranking creditors differently is a feature of advanced bank resolution frameworks,” Fitch says in a statement.
Fitch says that by assigning a separate rating to this risk, it will be able to communicate an opinion on the vulnerability to default facing bank derivative counterparties.
Initially, the rating agency proposes to assign derivatives counterparty ratings to certain banks in Europe, the U.S., Hong Kong, New Zealand and Switzerland.
Fitch does not say whether Canadian banks will receive these ratings.