Moody’s Issues Capital Warning to Global Banks - May Downgrade 17 Banks

Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness.

The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses. The potential downgrades have become a talking point on Wall Street, with some bankers openly criticizing Moody’s and others privately attempting to change the agency’s mind in closed-door meetings.

But in an interview with the Financial Times, Moody’s banking analysts said the agency was updating its financial ratings to take into account the historical tendency of banks to leverage their balance sheets and arbitrage global financial rules, often to the detriment of the banks’ own health and the safety of the wider banking system. Moody’s caution could see all 17 banks downgraded when the review is finally completed, expected to happen in mid-June. More...