DBRS Releases Critical Obligations Rating Criteria

DBRS has today released its new Critical Obligations Rating (COR) Criteria after a public request for comment period. In this Criteria, DBRS addresses the risk of default of particular obligations/ exposures at certain banks that are considered critical and have a higher probability of being excluded from bail-in and remaining in a continuing bank in the event of the resolution of a troubled bank than other senior unsecured obligations, such as can occur under the implementation of the Bank Recovery and Resolution Directive (BRRD). These obligations encompass derivatives, payment and collection services, obligations of a bank as issuer of covered bonds, and certain liquidity lines and contingent liabilities that are considered fundamental to a bank performing its critical functions under BRRD. To avoid confusion with other types of obligations and to better reflect the purpose of the rating, the name was changed from the Preferential Obligations Rating (POR) used in the Request for Comment published in November 2015.

Key aspects to the rating include the following:

• The rating will be assigned to banks that have a meaningful national market share; are complex and integral to the financing of the domestic economy; and are systemically important banks
• The notching generally applied is 2 notches higher than the bank’s Intrinsic Assessment
• At the point of resolution, the COR may be delinked from the Intrinsic Assessment/ senior debt rating, which are likely to move down multiple notches due to the higher risk of being bailed-in

DBRS took into consideration the comments received during the Request for Comment period, but determined that no material changes to the draft Criteria were warranted. However, the final Criteria contains certain amendments and clarifications, including the fact that both long-term and short-term COR ratings will be assigned.

DBRS expects to assign the Critical Obligations Rating to banks that have the necessary characteristics shortly after the publication of this Criteria.

DBRS criteria and methodologies are publicly available on its website www.dbrs.com under Methodologies.

For more information on ratings for banks and other financial institutions, visit www.dbrs.com or contact us at info@dbrs.com.

This methodology is intended for use in ratings assigned by DBRS Limited, DBRS, Inc. and DBRS Ratings Limited.