New York-based S&P Global Ratings has completed its review of Canada’s forthcoming new resolution regime for big banks and has deemed it “effective,” the rating agency announced Thursday.
S&P’s review covered including the final bank recapitalization (bail-in) issuance regulations, bank recapitalization (bail-in) conversion regulations, and related compensation regulations, along with the final total loss-absorbing capacity (TLAC)
Guideline, published in April.
The review will not impact S&P’s existing credit ratings for Canadian banks, or its view of the likelihood of government support for a failing bank, the rating agency says in a news release.
S&P expects to rate new bail-in-eligible senior debt at one notch below banks’ stand-alone credit ratings.
Notwithstanding the new resolution regime, S the federal government in Canada still has the legislative authority to support a failing bank.
“In our view, this is a notable difference from the policy environment and approaches in the U.S. or EU, for example. We continue to believe Canadian officials will examine all policy options in the unlikely event that a [domestic systemically important bank] is nearing non-viability,” it says.
This doesn’t necessarily mean that a bail-in would not be carried out, the rating agency says. “Rather, it simply means that we believe there is a reasonable likelihood that a government capital injection would also be provided, in addition to the capital created via conversion.”