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Fitch proposes new derivative counterparty rating for banks

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Fitch proposes new derivative counterparty rating for banks

Fitch Ratings said April 14 that its proposal to introduce anew derivative counterparty rating for banks is based on developments in bank resolutionframeworks, wherein different types of bank senior creditors "may be treatedmore favorably in a resolution process than others."

Assigning such a rating will help Fitch state its opinion ofwhether the vulnerability to default facing bank derivative counterparties is broadlyin line with, or meaningfully lower than, the same vulnerability by senior debtholders.

In some cases, authorities in some jurisdictions may still havepowers to treat derivative counterparties more favorably than equally ranked debt.Fitch proposes that the new derivative ratings be in line with banks' issuer defaultratings in these cases, where counterparties don't enjoy legal preference over debt.