DBRS has issued a request for comment on proposed changes to its European covered bond rating methodology whereby its Covered Bond Attachment Point (CBAP) can be notched up from Reference Entity ratings to reflect the introduction of the Bank Recovery & Resolution Directive (BRRD).

The rating agency announced the move on Friday after having last Wednesday placed 38 European banking groups under negative review because under BRRD and equivalent regimes there is less certainty around the likelihood of timely systemic support for the related systemically important banks.

Under its proposals, the CBAP can be notched up from the senior unsecured rating of the reference entity by up to two notches – previously, from their introduction in December, CBAPs were for European programmes the same as senior unsecured ratings.

DBRS said that the level of notching will depend on its assessment of two main factors: the importance of the reference entity for the economic and financial system of the relevant country; and the importance of covered bonds as an instrument for the economic and financial system of the relevant country and for the core business of the reference entity.

The rating agency expects, all else being equal, that the proposed changes will have a neutral to positive effect on all European covered bonds it rates. It noted that 10 out of 16 reference entities that it publicly rates were put Under Review with negative implications in the aforementioned bank rating actions, and that the ratings of Banco Comercial Português (BCP), Banca Monte dei Paschi di Siena were already under negative review and that of Novo Banco already under review with direction uncertain, with those reviews continuing.

“As a result, both the direction and the size of the combined impact is uncertain,” it said, “however, DBRS expects that, for the large majority of covered bond programmes, the net effect would be neutral.”