We believe that offering a new set of analyses and ratings on the banking industry, potentially differing in part from other existing rating narratives, contributes to a wider diversity of opinions, benefitting institutional investors and other market participants. The total assets of the banks currently rated by Scope represent nearly two-thirds of the aggregated balance sheet of the European banking market, with more than EUR half trillion of debt being rated.

The European banking sector has been emerging from a lengthy period of turmoil – the global financial crisis of 2007-2009 followed by the EU sovereign and banking crisis of 2010-2013. Profound adjustments driven by regulators and policy makers over several years have led to a successful rebooting of banks in some countries, while in others the legacy clean-up and restructuring remain work-in-progress, but generally on the right track. Substantially higher levels and quality of liquidity and capital demanded by Basel 3 and CRD 4-CRR, the recently inaugurated Banking Union for firms in the euro area (EA), and especially the emerging resolution and recovery regime across the EU/EEA – perhaps the most transformational regulatory change for European banks in many years – are all creating a new and arguably safer landscape across the industry.

More recently, the ECB’s Comprehensive Assessment exercise, which we consider to have been relatively successful, has shed light on EA banks’ asset quality and has led to new capital requirements for only a limited number of banks whose weak credit fundamentals had been in the public domain for some time. Also significant for EA banks, the Single Supervisory Mechanism (SSM) which became effective earlier this month should lead to increased consistency of the bank supervision process, based on risk-based and forward-looking principles and processes.

While many banks are safer on average compared to the pre-crisis years, investors in bank securities are more exposed than before to the risk of the firms they invest in. Banks may remain “too big to fail” but the burden of avoiding bank failures will be on investors and creditors rather than on taxpayers. In the case of important banks becoming critically stressed and unable to survive without some form of support, creditor bailin has been rightly identified as the least unappealing outcome, compared to either insolvency or taxpayer bailout.

Download full report on Scope’s European Bank Ratings