Moody's warns on credit ratings

Photo / Herald on Sunday

Moody's has warned that Reserve Bank plans for dealing with a bank failure are putting downward pressure on the big four banks' credit ratings.

ANZ National Bank, Bank of New Zealand, Westpac and ASB Bank are already under review for possible downgrade along with their respective Australian parents.

The Reserve Bank's "open bank resolution" policy, under development for years, is intended to ensure that the losses of a failing bank are shouldered by its shareholders and creditors (including depositors) rather than taxpayers, and to ensure that the bank is open for business the next trading day in order to limit damage to the financial system as a whole.

It involves putting the bank into statutory management and imposing a "haircut" on creditors' accounts and term deposits - freezing a portion of their funds.

This would reduce claims on the bank.

And it would quickly make available to the depositors the non-haircut portion of their deposits.

In exposing depositors to potential losses it differed from the "bail in" mechanisms under discussion in some countries, Moody's said.

It said that its ratings of the big four New Zealand banks included two "notches" of support from their parents and one notch of systemic support.

The rationale for that last notch of systemic support was challenged by the open bank resolution policy, Moody's said.