Bail-in divisions put bank swap ratings in doubt

Europe's fragmented resolution rules threaten Moody's framework

ECB: September legal opinion further muddied the waters

When Moody's Investors Service introduced a specific ratings framework for derivatives liabilities in March, many lower-rated banks rejoiced. The rating agency said banks' derivatives liabilities are unlikely to be used to recapitalise a failing institution, and that regulators will instead choose to use up its stock of senior bonds instead.

It used this assumption to rate these derivatives exposures higher than the bank's senior unsecured debt – in many cases by up to two notches. This meant