Moody’s: UK bank ratings safe for now

City A.M. Reporter
CREDIT rating agency Moody’s said proposals from the Independent Commission on Banking (ICB) to ring-fence the retail operations of UK banks and get them to hold more capital would not lead to any immediate rating changes on the sector.

Moody’s said, however, that the ICB’s proposals would have a negative impact in the longer-term for British banks’ bondholders.

Earlier this week, the ICB -- which submitted its final report to the government earlier this week -- said top UK banks should insulate their retail lending activities and store up billions in extra capital.

The proposals will impose a ring-fence limiting the extent to which a bank can use money in its retail arm to fund investment banking activities, thus increasing its funding costs, which will likely hit profits and possibly make it harder for banks to lend to businesses.

The ICB also insisted banks hold core capital of at least 10 per cent of risk-weighted assets in their domestic retail operations.

They will have to hold a further seven to 10 per cent of capital that can be in the form of “bail-in” bonds -- which take a loss or convert into equity to recapitalise a bank if it hits trouble -- giving a requirement they hold a total of primary loss-absorbing capital of between 17 and 20 per cent, a level only the Swiss also plan to introduce.

“The final report published by the ICB will not trigger any immediate rating changes for UK banks,” Elisabeth Rudman, senior vice president in Moody’s Financial Institutions Group in London, said in a statement.


● The ICB estimates the cost of its proposals at £4-7bn a year for the banking industry.

● It says half of the cost will be down to the ring-fence requirement and half due to a rise in funding costs due to the introduction of bail-in bonds.