Moody’s, a major credit rating agency, recently downgraded the ratings of three banking giants: JPMorgan Chase, Bank of America, and Wells Fargo. This follows Moody’s decision to lower the US government’s credit rating from AAA to AA1.
Why the Downgrades?
The reason for the bank downgrades boils down to the US government’s weakened ability to bail out banks if needed. With the US government’s credit rating now lower, the perceived risk associated with these large banks has increased. Moody’s cited the soaring US national debt and rising interest payments as key factors in its decision to lower the government’s rating. They predict that without changes to government spending and taxation, the situation will only worsen.
Specific Downgrades
Moody’s lowered the long-term deposit ratings for JPMorgan Chase, Bank of America, and Wells Fargo to Aa2, one notch below their previous rating. Additional downgrades affected some subsidiaries and branches of Bank of America, as well as the counterparty risk ratings for units of all three banks.
The Bottom Line
The downgrades reflect the interconnectedness of the US economy and the impact of government fiscal policy on the financial health of major institutions. The rising national debt and interest payments are creating ripples throughout the financial system.