Moody's swaps bail-in bet splits banks and buy side

In the next crisis, ratings agencies believe derivatives are less likely to be bailed in than bonds, so they should be rated higher. One agency has already taken the plunge, but buy-side firms are wary and the eurozone’s resolution chief has warned it is not a safe assumption

Buy-side firms are not ready to take the plunge. Pic: Stephen Lee

Moody's Investors Service recently did something brave and far-sighted. Or, perhaps, reckless and wrong-headed. It will be hard to tell until the next time a big bank is staggering into the void. When that happens, the rating agency believes derivatives counterparties exposed to the bank are unlikely to lose money under new resolution rules. Senior bonds will be used to recapitalise the bank instead – a forecast that, for the first time, de-links the ratings for the two and sets derivatives