Given that the likelihood of a government bailout for a failing bank is diminishing, Moody’s Investors Service has downgraded its rating outlook for the seven largest Canadian banks to negative from stable.

Moody’s announced Wednesday that it is affirming its long-term ratings for the seven biggest banks, but that it is also shifting the rating outlook for the supported senior debt and uninsured deposit ratings of those banks to negative.

“These actions are taken in the context of previously announced plans by the Canadian government to implement a ‘bail-in’ regime for domestic systemically important banks and the accelerating global trend towards reducing the public cost of future bank resolutions through such burden-sharing,” it says. “The negative outlook reflects Moody’s view that the balance of risk for the Canadian bank’s senior debt holders and uninsured depositors has shifted to the downside.”

For now, Moody’s assumptions of very high systemic support remain unchanged, it notes; however, the decision to assign a negative rating outlook reflects the possibility that it may reduce its systemic support assumptions in the future. Indeed, it says that within the next 12-18 months, it expects more details on theresolution policy for Canadian banks from banking regulators.

“Once details of the government’s bail-in regime are announced, Moody’s will evaluate the feasibility of implementing a bail-in of senior creditors while at the same time achieving the government’s other goals, including financial stability and limiting potential effects on the broader economy,” it says.

“The government’s intentions are clear, and if a legislative framework permitting bail-in can be implemented, it will likely be negative for creditors,” said David Beattie, vice president at Moody’s.

The rating agency says that the change in outlook to negative also reflects its view that the global trend towards the explicit inclusion of burden-sharing with seniordebt holders in order to reduce the public cost of bank resolutions “could reduce the predictability of support being provided to the senior debt holders and uninsured depositors of the large Canadian banks.”