Banks looking for clues from Canada

Six lenders currently benefit from a ratings uplift as a result of “extraordinary” government support - ANZ Banking Group, Commonwealth Bank, National Australia Bank, Westpac, Macquarie Bank and Cuscal. “So if S&P assessment of Australian government’s willingness to provide extraordinary support reduces to being “supportive” from the current “highly supportive”, S&P’s issuer credit rating for the four major banks and Macquarie Bank Ltd. might be lowered by one notch,” Mr Rundell said in a note to clients.

It made reference to the decision by another rating agency, Moody’s, to review the ratings of Canada’s banks, which like Australia’s, are among the safest and highest rated in the world. “Introducing credible ways to impose losses on creditors in the event of failure assists in achieving orderly resolution with minimal use of taxpayer funds,” the FSI interim report said. “This goes some way to addressing perceptions that some institutions have an implicit guarantee by reducing expectations of government support, and encouraging investors to pay greater attention to risk.

On Friday, S&P placed the ratings of several Canadian banks including, Royal Bank of Canada and Toronto Dominion Bank, on a review, citing “reduced potential for extraordinary government support arising from the implementation of the new elements of the resolution framework for Canadian banks”.

Read more here: SMH


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