Fitch Ratings says future government support for US banks is likely to be limited to a few systemically important banks, leading it to remove its assumption of support from its ratings of larger regional banks.
US government financial support and the potential for future support for banks is declining, although not entirely eliminated, Fitch says in a new report.
In conjunction with the report, Fitch has taken rating actions resolving the Rating Watch status for 17 banks.
The group of banks that Fitch believes would receive support if needed was reduced by more than 50%.
Nonetheless, Fitch views the eight most prominent and systemically important banks, including the recent addition of Morgan Stanley and Goldman Sachs, as the sole candidates for support. The Support Rating Floor (SRF) for these banks is now at ‘A’, which has been lowered from ‘A+’.
Fitch’s actions are predicated on the view that one of the clear focal points of bank regulators in response to the current crisis should be to establish a framework to enhance market discipline and remove government financial support for troubled banks. Evidence of this trend can be seen in many of the major markets around the world. The response in the US has been the most pronounced in terms of definitive legislative action.
The intent of the US to move away from providing direct support to problem banks is evidenced in the recent rating actions. Fitch believes that while untested, the government has the framework to resolve large regional banks without support or disrupting the market.
While the intent to remove support from all banks is clear, Fitch believes still heightened risks and unsettled funding markets will not allow for the same approach to be applied to the largest and most interconnected banks without creating unwanted ripple effects.
For details see the full report US Banks – Sovereign Support: When Does it End?