TORONTO, June 11 (Reuters) - Moody’s Investors Service on Wednesday said it revised its outlook downward on certain debt and deposit ratings of Canada’s largest banks, following the Canadian government’s plans to implement a “bail-in” regime to avoid a taxpayer-funded bailout in the event of a financial crisis.
The U.S.-based credit ratings agency said it revised its outlook to “negative” from “stable,” on the supported senior debt and uninsured deposit ratings of the banks, which include Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia.
“The negative outlook reflects Moody’s view that the balance of risk for the Canadian banks’ senior debt holders and uninsured depositors has shifted to the downside,” the agency said in a statement.
Moody’s, which did not change its debt ratings on the banks, also cited “the accelerating global trend toward reducing the public cost of future bank resolutions through such burden-sharing.”
Under a “bail-in” system, certain bank debt can be converted to equity in the event of a crisis. Several countries, including Canada, have embraced the idea as part of changes designed to prevent costly taxpayer-funded bank bailouts.
The practice came under fire when Cyprus tithed depositors in order to keep its banks from collapsing last year.
Canada responded by clarifying that depositor accounts would not be used in any potential Canadian bail-in.
Moody’s said the lowered outlook applies to RBC, TD, Scotiabank, the country’s three largest banks, as well as Bank of Montreal, Canadian Imperial Bank of Commerce , National Bank of Canada and Caisse Central Desjardins, Canada’s largest association of credit unions. (Reporting by Cameron French, editing by G Crosse)