Following the release yesterday of its updated bank rating methodology and the announcement earlier today of related rating reviews, Scope Ratings has published a brief report aiming to clarify the contents and timing of current and future rating actions related to the updated methodology.

Specifically, Scope’s latest methodology update includes MREL/TLAC unsecured debt rankings in the rating waterfall. Where there is sufficient regulatory and legal clarity on these rankings, the agency said that it will notch down the ratings of senior unsecured debt eligible for MREL/TLAC. This would occur via a one-off uplift of one notch for the respective banks’ Issuer Credit-Strength Ratings (ICSRs) and, if applicable, for the ratings of senior unsecured liabilities not eligible for MREL/TLAC.

“These adjustments do not in any way signal a shift in the fundamental approach underpinning our rating methodology for banks. They do reflect, however, our opinion that going forward the ICSR and non-MREL/TLAC liabilities should benefit from the protection of a materially more ample capital cushion in a default-like situation,” said Scope analyst Sam Theodore, who authored the report.

The rating agency highlights four scenarios related to MREL/TLAC eligibility of senior unsecured debt: (i) structural subordination for groups with a holding company parent; (ii) statutory subordination in liquidation (and by extension bail-in in resolution) of senior unsecured debt compared to deposits and other unsecured liabilities; (iii) contractual subordination of a specific category of MREL/TLAC senior debt as opposed to other senior debt (and other liabilities) not eligible for MREL/TLAC; and (iv) no specific allocation of senior debt to MREL/TLAC, with bail-in based solely on the Bank Resolution and Recovery Directive in the EU.

Noting that rating reviews for possible upgrade, according to the updated methodology, have already been initiated earlier today for the ICSRs and non-MREL/TLAC senior debt ratings of groups with a holding company structure, Scope’s report provides the approximate timing of similar rating actions for groups without a holding company structure but with regulatory and legal clarifications on the subordinated ranking of senior unsecured debt (or specific categories of it) in liquidation – or by extension in resolution. It is likely that these rating actions will occur starting in the near future and through the current year.

The report is titled “Ranking of MREL/TLAC Senior Unsecured Debt: Roadmap of Scope’s Bank Rating Adjustments” and can be accessed at www.scoperatings.com