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Credit downgrades for big banks

By David McMillin · Bankrate.com
Friday, December 2, 2011
Posted: 5 pm ET

It looks like consumers aren't the only ones downgrading their opinions of big banks.

After revising its criteria for assigning credit ratings to financial institutions, Standard & Poor's released a new round of ratings that includes some bad news for a few of the biggest members of the banking industry. Bank of America, Citigroup, Wells Fargo and JPMorgan Chase all watched their ratings fall.

According to a release from S&P, the agency's new criteria give "consideration of the potential for direct support from the bank's parent group or sovereign government." Because the new ratings system is partially based on the ability of a government to lend a hand in a worst-case scenario, I'm not too surprised by the downgrades. I don't think I'm alone in assuming the U.S. government is in no position to offer another bailout.

While having some less-than-profitable depositors remove their money on Bank Transfer Day may have delivered a public relations blow to these banks, credit rating downgrades are an entirely different animal. They can make access to capital more challenging and impact a bank's liquidity. Now, I don't think these new ratings are reason to sound the alarm. These banks only saw their ratings fall by one notch. However, we all know that bad news can manufacture more worries for the banking industry.

It's tough to estimate the true pulse of the banking industry right now. The FDIC's most recent quarterly banking profile delivered some positive news, but severe risks of government defaults in Europe have many people wondering how the rest of the world will impact the U.S. We've seen bank stock prices slump throughout the year and heard news of layoffs around the industry. Credit downgrades won't do much to restore confidence, either.

What do you think? Should this round of credit downgrades give us reason to worry about the health of the financial industry?

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1 Comment
JohnM.
December 03, 2011 at 8:09 am

Bank of America needs to pay back all the money they cheated people out of by fraud. The feds need to close the bank down and put many of the employees in prison where they belong.