Moody's downgrade for UK banks raises fears of credit crunch
Some of the world's biggest banks – including Barclays, HSBC and Royal Bank of Scotland – had their credit ratings downgraded last night as a result of the eurozone crisis.
Moody's, one of the three largest ratings agencies, imposed the downgrades after reviewing "global capital markets banks", or those with investment banking operations.
The announcement was made after US markets closed because most of the affected banks were American. Separately, Spain said its banks would need €51bn to €62bn of extra capital to weather a serious downturn as it prepares to ask for aid from other eurozone nations. The central bank in Madrid said Spain's problems were limited to a small group of lenders and its biggest banks would not need extra capital.
Moody's downgrades came amid fears that the euro crisis will prompt another credit crunch by making banks afraid of lending to each other, or to anyone else. The British Government has made billions of pounds of cheap credit available to UK banks.
Other banks reviewed by Moody's included the US firms JPMorgan, Goldman Sachs, Morgan Stanley and Citibank, along with BNP Paribas and Société Générale from France, Deutsche Bank of Germany and the Swiss investment banks UBS and Credit Suisse. The rival agencies Fitch and Standard & Poor's had already undertaken similar reviews.
The review process looked at the way bank ratings are calculated, the impact of the crisis on their creditworthiness and what this means for their financial strength.
A credit rating is usually expressed as a grade. At Moody's, anything from Aaa to Baa3 is rated as "investment grade", with lower ratings from Ba1 to C rated as "speculative" or "junk". Fitch and Standard & Poor's use a simpler system, with AAA to BBB representing "investment grade" and anything at BB or below signifying "junk".
The agencies were criticised during the financial crisis for giving high ratings to various investment vehicles linked to subprime mortgages, and for giving similarly high ratings to banks that would have collapsed without state bailouts.
Ratings used to be important because they fed through into how much any rated institution paid for borrowing money. However, lenders have increasingly taken their own view. One banker said yesterday: "You have to look at this in context. The market will take its own view of a bank's creditworthiness, and what's going on in Europe is well known."
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 2 Katie Hopkins and The Sun editor are reported to police for incitement to racial hatred following migrant boat column
- 3 Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
Katie Hopkins and The Sun editor are reported to police for incitement to racial hatred following migrant boat column
'Jihadi John': Isis executioner Mohammed Emwazi wanted to wage jihad in Somalia until his friends were betrayed and killed by al-Shabaab
Parma, Missouri: 80 per cent of town's police quit after first black mayor is elected
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
£16000 - £38000 per annum: Recruitment Genius: Due to continued expansion, an ...
£65000 - £70000 per annum + benefits : Ashdown Group: A long-established, tech...
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£55000 - £60000 per annum + benefits : Ashdown Group: Experienced Software Dev...