Moody's warns of UK bank downgrade

7 April 2011 11:25 am | By Gary Jackson

UK banks could suffer downgrades or reviews to their credit ratings because authorities are no longer as willing to bail them out, ratings agency Moody’s says.

The agency’s review may complicate the ongoing debate over reforming the crisis-hit UK banking system, which is struggling to keep its credit ratings high and its borrowing rates low.

The Independent Commission on Banking releases its report on British banking reform on Monday.

In a statement, Moody’s says it is reviewing the level of systemic support that UK’s banks and their senior lenders enjoy following less encouraging pronouncements from the country’s financial authorities.

Moody’s stresses the review has not been launched over fears of the strength of the British banking industry or the government, but because of the ongoing guidance from the Bank of England, the Financial Services Authority and the Treasury that banks could not expect bailouts using public money in the future.

The ratings agency claims that the high level of support built into the ratings of UK financial institutions is unlikely to be considered “systemic” over the medium term, prompting the examination.

Moody’s points out that UK banks now have “significantly” more systemic support incorporated in their senior debt ratings than before the financial crisis and says it has been planning to remove this “extraordinary” level of support from the ratings for some time.

“This reassessment could trigger negative outlooks, reviews for possible downgrade or downgrades for some ratings and will be taking into consideration Moody’s expectations on how the relevant banks’ standalone credit strength will develop,” the group explains.

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