Fitch: Foreign watchdogs may harm creditors
GLOBAL banks’ failures may be more chaotic than expected under new rules designed to make the process of winding them down easier, ratings agency Fitch warned yesterday.
Governments have tried to work together on plans to resolve broken banks across borders, but Fitch fears they have created a lop-sided system which means creditors in different areas will be treated unevenly.
Under new EU rules, national authorities will have to power to close down local branches of foreign banks.
Such a system could mean local assets sold to match local liabilities, excluding the overseas group from the process. At the same time, the bank’s home regulator will sell assets to match group liabilities.
As a result, creditors who appear to take the same priority in the hierarchy of investors could end up being treated differently because one is in the local branch level and the other has invested at the group level.
This setup could have perverse effects, Fitch warned, as investors move to different parts of the group. “Branch ring-fencing could encourage regulators and investors to rush for the exit and hamper orderly resolution of a large international institution,” it said.