Moody's: Brexit would increase resolution risks for European covered bonds

In its latest review on the impact of Brexit on the European bonds, the US ratings agency, Moody’s Investor Service, noted that Brexit is likely to increase resolution risks for non-UK European covered bonds.

Key Quotes:

“Brexit would raise the prospect that resolution measures for European covered bonds may be challenged”

“Unless the UK and the EU enter into new arrangements for reciprocal recognition, Brexit will place the UK outside the EU's BRRD framework for automatic cross-border recognition of resolution measures. As such, UK courts may not recognise resolution measures taken in the post-Brexit EU, where the measures apply to covered bonds governed by English law”

“Many European covered bond programmes with no UK assets still have a UK dimension, with bonds and swaps governed by English law”

"A lack of legal certainty undermines resolution and that is credit negative for covered bonds. The risk that the courts might not recognise resolution measures could prevent resolution from working efficiently to benefit covered bonds as intended by the BRRD"

"Resolution relies on legal certainty and on resolution authorities' ability to act quickly and decisively and on the basis that their decision will be effective"