One man’s meat is another man’s poison. While taxpayers will no longer be asked to pay up under the new liquidation plans for bank bailouts within the European Union, the plans increase risk for shareholders and bond holders, who will suffer in a worst-case scenario.
The move has prompted a reaction from the three top rating agencies, Fitch, Moody’s and Standard & Poor’s. The agencies are reviewing the creditworthiness of major banks, and many institutions can expect to see downgrades next year. In Germany, they are particularly focused on Deutsche Bank, a financial institution whose collapse , in theory, could threaten the global financial system.
Fitch announced that in the first half of 2015, based on current information, it will downgrade Germany’s largest bank from “A+” to “A,” which is still a high-quality rating. The rating agency said the reason for the downgrade is the loss of government support as a result of new E.U. bank liquidation rules, which Germany plans to introduce early, in 2015. Under those rules, known as the Bank Recovery and Resolution Directive, primarily creditors and shareholders will pay for a bank’s liquidation.