MELBOURNE (S&P Global Ratings) -Asia-Pacific countries are likely to retain the flexibility of the government bailout option as a primary support mechanism in dealing with potential banking crises.
That's according to "Bailout Not Bail-In: The More Likely Savior In Asia-Pacific's Next Banking Resurrection," a report published recently by S&P Global Ratings.
Since the global financial crisis, the response to the problem of banks that are too big to fail has varied by region and left a spectrum of approaches to financial institution failure: from bail-ins of bank creditors, at one end, to continuing to rely on government support at the other.
"At this stage, we see extraordinary support in the region as more likely to be forthcoming from governments rather than from what we term a financial institution's Additional Loss-Absorbing Capacity (ALAC), in a banking crisis," said Gavin Gunning, a credit analyst at S&P Global Ratings.
"We note that reforms concerning crisis management and resolution processes are at an early stage in Asia-Pacific compared with some other regions and that our ratings view will evolve according to what developments ultimately occur," he added.
Indeed, to date, Asia-Pacific G-20 countries have deliberately chosen to lag their counterparts in Western Europe and the U.S.in their embrace of the Financial Stability Board's (FSB) "Key Attributes of Effective Resolution Regimes." With virtually no government injections of equity into indigenous private sector banks by Asia-Pacific governments following the global financial crisis, and being generally more interventionist by nature, resolution reforms in Asia-Pacific have not been viewed with the same urgency as in other regions.
Under resolution reforms envisaged by the FSB, the intention is that regulators would have the powers and ability to recapitalize \or wind down banks in an orderly manner with no direct cost to taxpayers.
-rmc//