The BRRD, agreed in May 2014, aims to create a standard way of dealing with failing financial institutions. It is designed to reduce losses and avoid the use of public funds by transferring the burden to bank creditors.
In a report produced this week Moody's said that while the BRRD provides important guidelines for authorities and market participants, application across the EU is 'credit negative', in that it has increased the risk to creditors who no longer know exactly where they stand in the 'hierarchy' if a bank fails.
This could potentially affect the credit rating of those creditors, a spokesperson for Moody's said.
Germany and Italy have changed the BRRD hierarchy that lays out which asset classes face the first losses in an insolvency or resolution, Moody's said.
It is now possible that other countries will revisit their own implementation of the directive in light of Germany and Italy's decision, further increasing uncertainty. Decisions on cross-border creditor hierarchies will be particularly hard to predict, Moody's spokesperson said.
"National deviations seen to date to a more complicated and fragmented structure that will delay the process of resolving banks and make outcomes less easy to predict for market participants," says Simon Ainsworth, a credit officer at Moody's. "No one model is clearly superior, but the lack of consistency has the potential to lead to greater deviation in outcomes."
"Some changes introduce a wider degree of protection for depositors and others lower the protection offered to certain categories of senior debt," Ainsworth said.
Some member states have rejected the BRRD recommendation that the central bank should be the resolution authority, empowering the prudential regulator, debt management office or deposit insurance scheme to resolve banks, Moody's said.
There has also been a delay implementing the directive, which should have been effective across the EU from January 2015. "Some countries are still in the middle of the legislative processes," Moody's said.
"One consequence of the delay is the risk that a bank failure in a country yet to implement the directive might have to be dealt with under existing legislative processes, with the likely high legal risk surrounding those actions given the conflict between EU and national law," said Ainsworth.