Reuters logo
Fitch: EU Harmonised Bank Creditor Hierarchy May Unlock Issuance
December 2, 2016 / 9:26 AM / in a year

Fitch: EU Harmonised Bank Creditor Hierarchy May Unlock Issuance

(The following statement was released by the rating agency) LONDON, December 02 (Fitch) An EU-wide harmonised approach to bank creditor hierarchy would reduce uncertainty for debt issuers and investors, Fitch Ratings says. It could also unlock debt issuance for EU banks. The European Commission has proposed a new statutory category of senior non-preferred unsecured debt that would rank below other senior liabilities. This, together with clarity on how debt would be treated until the new rules apply, would relieve uncertainty currently blocking a path for issuance of senior loss absorbing debt. There could be a large supply of new senior loss-absorbing instruments hitting the market in a short period of time, although the net debt increase will be much lower due to existing instruments maturing. High supply could make it more costly for the issuing banks and increase levels of polarisation, with small or weaker banks finding it harder and more expensive to build up the required buffers. Nevertheless, the proposals give banks a clearer path for issuing senior loss-absorbing debt. The proposals should also make bail-in easier, particularly of debt in cross-border groups, by reducing uncertainty for debt issuers, investors and resolution authorities. The new debt class would allow EU global systemically important banks (G-SIBs) to meet the Financial Stability Board's Total Loss-absorbing Capacity (TLAC) requirements. It also allows other EU banks to meet the EU's minimum requirement for own funds and eligible liabilities (MREL) in subordinated form. TLAC applies only to the 13 EU G-SIBs, while the conceptually similar MREL applies to most EU banks under the Bank Recovery and Resolution Directive. Resolution authorities set the level and the subordination of MREL on a case-by-case basis depending on the resolution strategy. Some countries have already started to adopt their own approaches to achieve the mandatory subordination of senior debt required to meet TLAC/MREL standards. The proposals seek to harmonise the creditor hierarchy across the EU, in light of the varying approaches already taken, without affecting the insolvency ranking of existing national law governed instruments France has already largely legislated for a new class of senior non-preferred consistent with the new rules. In Spain, banks can already issue subordinated 'Tier 3' debt, which sits above Tier 2 debt, although Tier 3 is not eligible as regulatory capital. No Spanish bank has yet issued in Tier 3 and we believe they may now wait to issue appropriate new instruments once the EU proposals are finalised Germany has already enacted retrospective legislation to subordinate vanilla senior bank debt to other senior liabilities from 1 January 2017. We believe the harmonisation approach leaves this plan intact, as we believe the new debt class will rank pari-passu with outstanding vanilla senior debt. Italy has introduced full depositor preference from 2019. This may be reviewed in light of the revised EU requirements, although depositor preference is not incompatible with creating a separate debt class. The UK's preferred holdco/opco structure for resolution should still work with the EU's credit hierarchy harmonisation. UK holding company resolution entities will issue bail-inable debt to third parties, which is then down-streamed to the operating bank, possibly in the form of the new senior non-preferred debt. The initial deadline to apply the new rules from 1 July 2017 is tight in terms of national legislative schedules, but necessary to give EU G-SIBs sufficient time to issue the debt to meet the TLAC requirements from 2019. MREL applies from 1 January 2016 but EU resolution authorities have the flexibility to determine an appropriate transitional period before setting a final deadline. The Bank of England, for instance, has set final compliance by 2020. Contact: James Longsdon Managing Director Financial Institutions +44 20 3530 1076 Fitch Ratings Limited 30 North Colonnade London E14 5GN Monsur Hussain Senior Director Financial Institutions +44 20 3530 1793 Alan Adkins Group Credit Officer - Global Financial Institutions Credit Policy Group +44 20 3530 1702 Cynthia Chan Head of Fitch Wire Credit Policy Group +44 20 3530 1655 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below