The 2015 Global Credit Outlook For Banks

· Diminishing government support is exerting downward pressure on ratings, but could be mitigated by the

additional loss-absorbing capacity of most banks, in our view;

· The economy provides little tailwind across most of the globe and the U.S. Fed's interest rate normalization

may impact some emerging market banking systems;

· Evolving regulations remain a limited cause for uncertainty and the final details, particularly on ring-fencing or

legal separation, may have an impact on the credit quality of some banks; and

· Geopolitical tensions in some parts of the world create uncertainty and risk.
 

After the global financial crisis, many governments--particularly in mature economies--stated their intentions to reduce

support for banks' senior creditors, and this is the biggest game changer for banks. In Europe, the EU bank recovery

and resolution directive (BRRD), which will be effective in January 2016, includes a mandatory bail-in of no less than

8% of total liabilities (including own funds) of the bank. Three member states, the U.K., Germany, and Austria, plan to

implement this already as of January 2015 (see "S&P Now Likely To Review Systemic Support For Austrian, German,

And U.K. Bank Operating Companies In Early January 2015," published Nov. 25, 2014). The U.S. authorities are also at

the forefront of the reform wave. Extraordinary government support for a single institution has in fact been prohibited

since July 2010 with the passage of the Dodd-Frank Act, and U.S. regulators are continuing to build out the

single-point-of-entry framework for resolving a global systemically important U.S. bank. Canada has also developed

proposals for a bail-in regime. Whereas many countries in Asia-Pacific are not likely to follow the European and North

American paths, some have taken steps toward their own resolution schemes. In Australia, we are still analyzing the

full report from the independent body commissioned by the government--the Australian Financial System Inquiry

(FSI)--that was released on Dec. 7, 2014, but our initial reaction is that the FSI does not seem to favor statutory bail-in.

In New Zealand, the open bank resolution framework signals a decreasing willingness of the government to fund a

bailout, in our view.

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