The stricterguidelines set for therecovery plans for Brazil's systemically important banks are credit positive, Moody'ssaid July 6.
The measures,which incorporate recommendations from the Financial Stability Board, require thatrecovery plans identify their critical functions for the national financial system,as well as adopt stress testing scenarios, according to Banco Central do Brasil.
Banks with totalassets that exceed 10% of GDP, excluding development banks, will carry out the self-assessments,which are intended to reduce the use of government funds to support banks, Moody'ssaid in a research note. Banks impacted include state-owned banks and as well as privatelenders Itaú Unibanco Holding SA,Banco Bradesco SA andBanco Santander (Brasil) SA.
The rating agencyconsiders the full implementation of a resolution regime as negative to bank creditorsthat currently benefit from government support, but broadly positive for the system."The new requirement is credit positive because it will improve transparencyand regulatory oversight, and will create a roadmap to help systemically importantbanks manage periods of heightened financial stress, helping reduce moral hazardand contain systemic risks," Moody's added.
Moreover, therating agency stated that implementing "living wills" in Brazil wouldfurther align the country's regulations with global macro-prudential trends, followingsimilar implementations in the U.S. and the European Union.