Moody’s downgrades 12 UK banks
Friday October 07 2011 | 07:04 AM

Moody's has downgraded the senior debt and deposit ratings of 12 UK financial institutions in light of its review of the systemic support assumptions from the British government.

The news comes the day after the Bank of England said it would pump more money into the system in a bid to boost the ailing economy.

BoE governor Mervyn King said Britain was facing "the most serious financial crisis at least since the 1930s, if not ever", admitting that "there is not enough money".

Moody's rationale for the rating actions is that UK authorities have "significantly reduced" the predictability of support for banks over the medium to long term and they are more likely to allow smaller institutions to fail if they get into trouble. 

However, the rating agency stresses that the downgrades do not reflect a deterioration in the financial strength of the banking system or of the government.

RBS and Nationwide Building Society have been downgraded by two notches from Aa3 to A2, while Lloyds TSB Bank has been downgraded by one notch from A1 to Aa3, Santander UK from Aa3 to A1 and Co-operative Bank from A2 to A3. Seven other smaller building societies were also downgraded by between one and five notches.

The recent Independent Commission on Banking proposals also influenced the rating agency. Although Moody's said that proposals to ring-fence banks do not have an immediate rating impact on UK banks, they are "they are credit-negative for
 bondholders longer-term as they indicate that new structures, such as
 ring-fencing, could be introduced to aid resolution and allow senior
bondholders to share the burden of bank failure".