Standard & Poor’s Ratings Services said that it will give more weight to the likelihood of extraordinary government support for systemically important banks in Canada in its ratings.

In a commentary published today, S&P notes that “in light of the supportive actions undertaken by the Canadian government in the past year and our assessment that the government’s backing is unlikely to waver, the prospect of future specific government intervention for financial institutions under stress will, as a general matter, figure more prominently in our credit analysis.”

The rating agency notes that many governments have intervened directly to prop up financial institutions lately, and in many cases, the support has been more extensive than it anticipated.

Due to their dominant market share across Canada and their role as top-tier national retail deposit takers, S&P has classified the big five banks — Bank of Montreal, Bank of Nova Scotia, CIBC, Royal Bank and TD Bank — as highly systemically important to the Canadian banking system.

“We believe that a default of any of the above banks would have high systemic implications given the size, nature, and reach of these institutions’ activities,” said Standard & Poor’s credit analyst Daniel Koelsch. In addition, these banks provide payment systems and basic banking functions that in our view are critical to the Canadian economy.

CIBC outlook revised to stable

In addition, S&P affirmed its ratings on CIBC and revised its outlook on the bank to stable from negative. “The ratings on CIBC reflect our view of a combination of expectations of extraordinary external support from the Canadian government should that be required and CIBC’s own credit characteristics,” said S&P credit analyst Tanya Azarchs.

IE