Huge news for the Australian banking industry today from Standard & Poor’s, which is rethinking its approach to the implied government guarantee that gives major banks and Macquarie a ratings advantage over smaller players in the Australian financial landscape.
At present, Standard & Poor’s essentially assumes that the majors and Macquarie are too big to fail. As a consequence, the agency assumes “extraordinary government support” for those organisations, and boosts their ratings by 1 notch.
But APRA is considering a new approach to crisis management that would force creditors of troubled banks to write off some of the debt they are owed, allowing banks to avoid bankruptcy without taxpayers having to step in.Standard & Poor’s has not made a final decision on the ratings impact yet but its report, released this week, suggests that it is seriously considering a change.
This has huge implications for the Australian economy, the cost of borrowing in the economy, the attractiveness of Australian assets and the level of the Australian dollar if Standard & Poor’s decides to take the path of downgrades. (here)