DBRS: Rating the New French Senior Non-preferred Debt Instruments

DBRS Ratings Limited (DBRS) today published a commentary “Rating the New French Senior Non-preferred Debt Instruments”, in which it outlines its approach towards rating France’s new Senior Non-preferred debt instruments. These are to be established as an instrument to aid in the resolvability of complex banks under the “Transparency, Anti-corruption and Economic Modernization” legislative bill, which is close to reaching final approval.

The aim of the new category of instruments is to facilitate the implementation of bank resolution procedures, as provided for in the European Bank Recovery and Resolution Directive (BRRD) and to enable French banks to meet the Financial Stability Board’s (FSB) Total Loss Absorbing Capacity (TLAC) requirements. France has four Global Systemically Important Banks (G-SIBs), which are subject to TLAC requirements. These requirements impose a minimum amount of “bail-inable” debt as a percentage of risk-weighted assets (RWAs) to be issued by banks. They also state that TLAC eligible instruments need to be subordinated to deposits and other hard-to-bail-in instruments to ensure resolvability (through structural, contractual or statutory subordination).

The law introducing new TLAC-compliant Senior Non-preferred debt should soon come into force in France. Provided that the articles relating to the new category of debt come into force in the currently proposed format, DBRS will rate the new Senior Non-preferred instruments one (1) notch below the Intrinsic Assessment.

In DBRS’s view, creating a new class of debt with a precise place in the hierarchy of creditor claims, will facilitate banks’ ability to increase loss-absorbing capacity. The new class of debt will assist French banks in meeting their 2019 TLAC requirements.

Today’s commentary is available at www.dbrs.com.