CREDIT ratings agency Moody’s warned last night that it may cut the debt ratings of four of the biggest US banks, citing expectations of reduced government assistance in the case of a fresh financial crisis.
Moody’s placed Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo on review, and is considering whether to downgrade them. Two further banks, Citigroup and Bank of America, are also to be reviewed but are more uncertain.
The assessment is designed to determine whether the banks would cope in a crisis, based on changing assumptions about the level of support they could expect from the US government.
Robert Young, managing director at Moody’s, cited major changes to US financial regulation for the move: “In the past year, we have seen progress towards establishing a framework to credibly resolve these large systemically important banks, as called for under the Dodd-Frank act”. Parts of the Dodd-Frank act are designed to limit the exposure that taxpayers have to struggling banks by legislating against bailouts.
Two other banks that were already on review to be downgraded, BNY Mellon and State Street, will also be considered by Moody’s.