Although the new “bail-in” regime for Canadian banks is slated for implementation in the first half of next year, the banks won’t be in a position to avoid the prospect of a government bailout at that point, according to a new report from DBRS Ltd.
The proposed new regime, which is being adopted in response to the financial crisis, will likely be finalized this autumn and implemented in the first half of 2018. However, the Toronto-based credit-rating agency doesn’t expect that the banks will start issuing the type of debt that would be used in a “bail-in” situation until after the new regime officially takes effect. Existing debt would not be subject to a retroactive bail-in, it notes.
So, to start, DBRS says that its expectations of continued government support for the big banks remains unchanged and that its ratings and outlooks for the ratings also remain unchanged as a result.
“Given the proposals, DBRS expects to maintain the current notch of systemic support until these D-SIBs build up sufficient new “bail-inable” senior debt to reduce the likelihood of such support,” the report says. “DBRS continues to evaluate the impact of the proposed regulations and will comment further as the proposals are finalized.”
Once the new regime is in place, DBRS says that the Department of Finance Canada expects that the banks will able to meet their bail-in obligations by replacing maturing senior debt with new “bail-inable” senior debt.
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