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March 27 (Reuters) - (The following statement was released by the rating agency)
As outlined in a special report published today, Fitch Ratings is now considering introducing a rating differential between the bank holding company (BHC) and bank operating companies (opcos) in the U.S. due to structural changes in the sector and evolving regulatory landscape. Under its current criteria, Fitch equalizes U.S. BHC and opco ratings. This reflects the close correlation between BHC and subsidiary default probabilities. Regulation continues to evolve, but the Dodd-Frank Act’s Orderly Liquidation Authority (OLA) provides a framework for the resolution of large, systemically important banks. It enforces BHC structural subordination through the ability to bail in BHC capital in favor of its subsidiaries under a ‘Single Point of Entry’ (SPOE) approach to resolution.
Continued regulatory progress would be consistent with greater-than-historical differentials in BHC/opco relative credit risk profiles, which may ultimately be reflected in rating changes.
Fitch is considering the following three options for changing the application of its current criteria for U.S. banks in light of regulatory change and policy maker intentions, which are discussed in more detail in the report:
--Downgrade BHC ratings
--Upgrade bank opco ratings
--Maintain status quo
How Fitch ultimately reflects the evolving regulatory changes in potential rating changes is not reflective of the agency’s fundamental view of the U.S. bank sector. Fitch’s U.S. bank rating outlook remains stable. Credit fundamentals for U.S. banks are relatively strong with solid capital, liquidity and asset quality positions. While earnings challenges persist, Fitch believes the U.S. bank sector is well positioned for 2014.
In conjunction with the publication of this report, Fitch invites feedback from market participants. As noted, this is not a change of criteria. But as it does reflect a potential change in a key assumption, Fitch is seeking comment. Comments should be sent to FIcriteria@fitchratings.com by May 15, 2014.
The full report ‘U.S. Bank HoldCos & OpCos: Evolving Risk Profiles’ is available at ‘www.fitchratings.com.'