Moody’s has recently downgraded the credit rating of 12 UK financial firms. Among those affected are Lloyds TSB, the Royal Bank of Scotland, and Santander UK.
Moody’s said that the downgrades do not indicate “a deteroriation in the financial strength of the banking system.”
The ratings firm said that the downgrades are a reflection of its beliefs that the UK government is now less likely to bail out financial institutions should they face a crisis.
Moody’s “reassessments” include a two-notch downgrade for the Royal Bank of Scotland, which has heavy ties with the UK government. Lloyds TSB, of the Lloyds Banking Group, was downgraded by one peg, from Aa3 to A1.
Lloys and RBS both faced a 3.5% drop in shares during morning trading.
Santander, a Spanish bank, had its UK branch downgraded by one notch, from A1 to Aa3. Other financial firms that marked a loss in credit rating were Co-operative Bank, Nationwide Building Society, and Newcastle Building Society.
Moody’s said that the ratings of HSBC, Barclays, and Standard Chartered were unaffected.
The Too-big-to-fail Problem
Royal Bank of Scotland said it was disappointed in the Moody’s announcement.
“We do, however, see the removal of implicit government support for the UK banking sector as being a necessary and important step forward as the sector returns to standalone strength,” said a statement from RBS.
George Osborne says that Moody’s took action because they see the government actually moving to take actions that will safeguard taxpayers from another banking sector bailout.
“People ask me how are you going to avoid Britain and the British taxpayer bailing out banks in the future? This government is taking steps to do that,” said Chancellor Osborne.
“Therefore credit rating agencies and others will say, well actually these banks have got to show they can pay their way in the world,” Osborne said. He added that he was confident that British banks are well-capitalised.