Moody's Expected to Downgrade Numerous European Banks Following New EU Regulations

Market participants are bracing for potential credit rating downgrades for a significant number of European banks from Moody's. This anticipated action follows the expected finalization of the EU’s Crisis Management and Deposit Insurance (CMDI) framework.

The CMDI framework will subordinate senior preferred bondholders to depositors within a bank’s capital structure. This change in the resolution hierarchy is the primary driver of the expected rating pressure.

Analysts predict this shift will prompt Moody's to cut senior preferred debt ratings for as many as 60% of European banks. The downgrades are likely to be by one notch.

In response to the impending regulations, some banks are reportedly already altering their funding strategies. These changes aim to mitigate the potential impact on their borrowing costs.