Banks Risk “Bail-In” – New Rating Agency

Thursday, April 3, 2014
By Paul Martin

Gold Core
Thursday, 3 April 2014

“Bail-In” Risk High In Banks – New Rating Agency
The risk that creditors, savers and bondholders, rather than taxpayers will bear the brunt of rescuing a bank in trouble form part of the first credit ratings given to 18 of Europe’s biggest banks yesterday by new ratings agency, Scope.

Scope said its ratings reflected the likelihood that if a bank runs into trouble, bondholders will be “bailed in” to strengthen the bank rather than a taxpayer-funded rescue as happened during the financial crisis, according to Reuters.

The company, which set up in Berlin in 2002 and started credit ratings two years ago, said it aims to offer a new approach for corporate bond investors that typically rely on the three major ratings firms – Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

Scope focused on the risk posed to bank bondholders rather than the very real risk posed to bank’s other creditors – the depositors.

“Banks are still too big to fail, the only difference is that somebody else will pay to avoid a failure, and that somebody else is the creditors,” said Sam Theodore, Scope’s Managing Director for Financial institutions.

“Through bail-in you could call this the privatisation of bank rescues, which to us is one of the most significant regulatory steps taken in recent years in respect to banks,” Theodore said.

A new resolution and recovery regime for banks is in place in Switzerland and is coming in across the European Union, the UK and G20 nations.

The measures mean that large banks will remain “too big to fail” and that rather than taxpayers being on the hook for the poor performance of banks, now hitherto protected depositors, including the deposits of employment creating companies, will be used to bail-out “too big to fail” banks.

Banks globally remain vulnerable. Our recent research on the developing
bail-in regimes clearly shows this. It is now the case that in the event of a bank getting into difficulty, deposits could be confiscated as happened in Cyprus.

The Rest…HERE

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