UK banks downgraded

Last updated: Oct 7th, 2011
London skyline

Some of the UK's biggest banks have been downgraded by ratings agency Moody's.

The ratings agency believes the government is now less likely to bail out any troubled institutions - and smaller firms in particular.

Following this, it has downgraded 12 UK financial institutions including Lloyds TSB, Santander, RBS, Nationwide and the Co-Operative Bank.

Seven smaller building societies have also been downgraded.

The downgrades are the result of a large-scale assessment by Moody's on how likely it is the UK government would financially support a particular bank or building society if it runs into trouble.

Lloyds TSB, Santander and Co-Operative Bank have all been downgraded one notch for their 'debt and deposit ratings', while Nationwide and RBS have been downgraded two notches.

Moody's says the downgrades "do not reflect a deterioration in the financial strength of the banking system or that of the government".

It believes the government is still likely to continue to offer some level of support to "systemically important financial institutions".

However, it thinks the government is "more likely now to allow smaller institutions to fail if they become financially troubled."

Government support

Despite the downgrades, Moody's still put Lloyds and RBS in the group of financial institutions that it expects will receive a high level of governmental support.

Nationwide, Santander UK and the Co-operative fall into the second group of financial firms Moody's class as having "moderate or high likelihood of support".

However, smaller building societies Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire are classed in the third category as "institutions with a low or no likelihood of support". 

Should savers worry?

Some of the smaller building societies frequently appear in the best buy savings tables – for example West Brom, Newcastle and Yorkshire all feature in the instant access best buys paying 2.51%, 2.35% and 2.25% respectively.

This week's best savings rates

Paul Richardson, an adviser with IFA Concept Financial Planning, says savers will "immediately feel more exposed on the back of this news".

"This is all about perception and the perception will only be bad," he adds.

However, he adds that people can take comfort from the government-backed Financial Services Compensation Scheme, which protects £85,000 of a person's savings per financial institution.

Your Comments

Here is an article showing how Europe's central banks no longer trust the stability of their domestic banking industry and have deposited record funds with the Federal Reserve rather than their own banking sector:

http://viableopposition.blogspot.com/2011/09/federal-reserve-reverse-rep...

This phenomenon was last seen in mid-2008 just prior to the onset of the Great Contraction.

Assuming the worst happened, exactly how long in moths, years etc does it take the Government to pay out to ALL individuals under the FSCS scheme up to £85,000?