Rating Agency Developments

On August 2, 2016, Moody’s issued a report entitled: Moody’s Approach to Rating Securitisations Backed by Non-Performing and Re-Performing Loans.  Report.

On August 1, 2016, S&P issued a report entitled: General: Global Methodology for Rating Retranchings of ABS, CMBS, and RMBS.  Report.

On July 29, 2016, DBRS issued a report entitled: Global Methodology for Rating Banks and Banking Organisations.  Report.

On July 28, 2016, Fitch issued a report entitled: Fitch Updates Global Rating Criteria for CLOs and Corporate CDOs.  Report.

On July 28, 2016, Fitch issued a report entitled: Fitch: No Rating Changes from Update to Global LMI Criteria in RMBS.  Report.

Agencies Propose Net Stable Funding Ratio Rule

On May 3, 2016, the Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency proposed a rule, the net stable funding ratio (the “NSFR”), to strengthen banks by requiring them to maintain a minimum level of stable funding relative to the liquidity of their assets, derivatives and commitments over a one-year period.  The most stringent of the NSFR’s requirements would apply to, among others, banking organizations with $250 billion or more in total consolidated assets.  The NSFR would become effective January 1, 2018.  ReleaseProposed Rule.

Rating Agency Developments

On January 8, 2016, Fitch updated its criteria for rating investment holding companies. Report.

On January 7, 2016, Moody’s updated and replaced its existing methodology for rating banks. Report.

On January 7, 2016, Moody’s published its methodology for rating central counterparty clearing houses (CCPs). Report.

Rating Agency Developments

On June 29, Moody’s released it consolidated global bank rating methodology. Moody’s Report.

On June 29, DBRS released its global methodology for banks and banking organizations. DBRS Report.

On June 29, Kroll Bond Ratings released its equipment lease and ABS rating methodology. Kroll Report.

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European Commission Proposes Measures to Avoid Future Bank Bailouts

On 6 June, the European Commission published a legislative proposal for a Directive designed to avoid future taxpayer bailouts of troubled banks. The proposals aim to ensure authorities will have the means to intervene decisively before problems occur, or if they do occur, to intervene as early as possible. Banks that have deteriorated beyond repair would be partly rescued by unsecured creditors rather than taxpayers. Legislative Proposal.

The proposals include:

  • Preparatory and preventative measures – including recovery plans, resolution plans, powers to address or remove resolvability impediments and intra-group support agreements;
  • Early supervisory intervention;
  • Resolution tools – including selling all or part of a failing firm to another firm, separating “good” assets into a new firm, putting “bad assets” into an asset management vehicle and a “bail-in” tool which involves a firm being recapitalised with creditors having their claims reduced or converted to shares; and
  • Enhanced co-operation between national authorities.

The European Commission intends Member States to finalise their implementing measures for the proposed Directive by 31 December 2014 and apply the measures from 1 January 2015. The bail-in tool should be applied from 1 January 2018. A Law-360 article, with comments from Orrick’s Partner Sam Millar, a regulatory partner in the London office, can be found here.