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A Bank of Canada Staff Working Paper by Patricia Palhau Mora titled The “Too Big to Fail” Subsidy in Canada: Some Estimates contains a warning for future changes to Canadian bank credit ratings:

Despite progress on regulation, CRAs [Credit Rating Agencies] continue to generally factor in some (or even the same) expectation of public support, which suggests that challenges to effective resolution are expected to remain. In Canada, revisions to the ratings’ methodologies did not generally result in changes to state-support expectations for the domestic banks. Moody’s still rates Canada as a “supportive jurisdiction” in its government support assessment framework, reflecting an expectation that the government would still need to bail out a large financial institution given the size of Canadian banks relative to the national economy, and the potential for contagion among large interconnected players. Following the release of the 2014 bail-in consultation paper (Department of Finance Canada 2014), CRAs placed the credit ratings of the D-SIBs and Desjardins under negative watch, indicating they would likely be revised down “in the near future.”42 Moody’s kicked off the revisions in July 2014 by changing the outlook of the seven largest Canadian banks’ long-term senior unsecured debt and deposit notes’ ratings to “negative” from “stable.” S&P followed in August 2014, also revising the D-SIBs’ outlook to “negative” from “stable,” factoring in an expectation that extraordinary government support to D-SIBs’ senior bondholders would become less certain.

While bail-in legislation received Royal Assent in summer 2016, CRAs have not yet changed the support assumptions, publicly stating they are still awaiting more detail on the operational aspects of the regime. More recently, in a request for comments published on November 6, 2017, Moody’s proposed designating Canada as an “operational resolution regime,” given the introduction of preliminary bail-in rules, signalling that government support expectations for D-SIBs are likely to decrease soon. This would be consistent with large bank ratings being lowered up to three notches in the US and the EU in response to Dodd–Frank Title II and the EU Bank Recovery and Resolution Directive.

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