Credit Rating Agency Moody's Downgrades 15 Banks

Fifteen major banks were downgraded Thursday in a reflection of the slowing global economy and volatility in financial markets. In a sweeping move, Moody's cut the credit ratings of some of the world's largest financial institutions, including Bank of America, Goldman Sachs and Citigroup.

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This is MORNING EDITION from NPR News. I'm Renée Montagne.

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And I'm Steve Inskeep. Good morning. Let's examine the latest evidence of trouble, or at least anxiety, in the global economy. Fifteen major banks were downgraded yesterday by the credit rating agency Moody's. This sweeping move comes with much of Europe in recession and economic growth slowing throughout the world.

Reaction to the downgrades has been mixed. The Dow is actually up in early trading, although European markets are lower. We're going to talk about all this, now, with NPR's Chris Arnold. He's on the line. Hi, Chris.

CHRIS ARNOLD, BYLINE: Hey, Steve.

INSKEEP: Quite a list of banks downgraded here.

ARNOLD: Yeah, it's basically all of the biggest banks in the U.S., just about, and many other major banks around the world. And what Moody's is doing here, is it's basically repositioning the credit worthiness, in its view, of almost the entire financial industry. And pretty much, every bank got taken down a notch or two. Still, Moody's says there are some banks that are in pretty good shape. It has a first tier of banks that includes J.P. Morgan Chase, HSBC, and The Royal Bank of Canada - so that's in the strongest tier. Below that they have Barclay's, Deustche Bank, and Goldman Sachs. And these are banks that Moody's says, have some exposure to the ongoing trouble in Europe or some other risks.

And Moody's actually used a car analogy here. And it said that these banks have shock absorbers, and they're good, but they're not as good as the first group of banks' shock absorbers. And so their systems to protect themselves are not as good.

INSKEEP: Well, if we can extend that analogy a little more. If you downgrade so many banks at once, it suggests that the entire road has gotten rougher, gotten rockier. Are there really that many more potholes than there were six months ago, or a year ago, as Moody's sees the world?

ARNOLD: Well, that's the worry. The road ahead of us - to continue the analogy - bends and twists and we can't see what's, exactly, coming. And so we need to know which banks are going to be able to withstand whatever shocks are coming, down - down - down the road.

INSKEEP: And maybe we won't end up with one of those videos like you see in Driver's Ed. But anyway, go on, go on. Anyway...

ARNOLD: Well, so in the bottom tier we have Bank of America, Citigroup, Morgan Stanley - they're kind of in the worst shape out of the major banks where it's like, you know, one of those ads where the wheels are flying off the car. I mean, not yet, but they're saying, you know, they're in the greatest - they face the greatest risk of something bad happening if there is a big upset in Europe or something like that.

INSKEEP: Banks don't seem to be too happy about these downgrades.

ARNOLD: No. You can imagine - we've known that these downgrades were coming. Moody's first announced this in February, so banks have had plenty of time to, kind of, lobby and say, hey Moody's, don't do this, or don't do it as severely as you might be thinking about doing it. And they've been saying for a long time that they don't this is necessary. And a lot of them are coming out with more statements like that. So that.

INSKEEP: Just a few seconds here, Chris Arnold, but as the banks denounce this, how exactly are the markets reacting? We alluded to mixed reaction, but how are things going right now?

ARNOLD: Well, I think yesterday there was worry, and you saw the stock markets really go down pretty sharply. And then today, whether investors are just shrugging this off or maybe the downgrades weren't as severe as some people had feared, today, bank stocks are rising. So, it does not seem to be the end of the world for the major banks.

INSKEEP: That reminds me that when the United States was downgraded, it didn't have all that much affect of the markets either- in the end.

ARNOLD: Yeah, it's a slightly different situation, it's kind of like downgrading the best country in the world, as far as its financial situation, so it can't have much impact. But yes, not a huge result so far.

INSKEEP: Thanks very much, that's NPR's Chris Arnold.

ARNOLD: Thanks Steve.

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