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Moody's bank downgrade: It's a doozy

The credit ratings agency cuts the credit ratings of 15 big banks, including Citigroup and Bank of America.
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A large American flag draped across the front of the New York Stock Exchange August 5, 2011. (Stan Honda/AFP/Getty Images)

As downgrades go, this one was a doozy.

Four months ago, Moody's warned banks that they were in trouble.

Today, the ratings agency followed through on that threat.

It downgraded 15 big banks in the UK, Canada, Europe and the US, including Citigroup, Bank of America and Morgan Stanley.

Yeah, it's a big deal.

Here's how Moody's explained the move, which came after the US markets closed, though not before the S&P 500 Index had dropped 2.2 percent on rumors that the bad news was coming:

“All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities” Moody’s Global Banking Managing Director Greg Bauer said in a statement, printed in full here on Business Insider. "However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges."

So what's going on? And what's this likely to mean?

First the timing is terrible, with many banks already struggling with their exposure to the European debt crisis.

Second, banks will now have to work extra hard to restore confidence in their operations.

Customers, especially big ones, don't like to keep their money in institutions that are nearing junk bond status.

Finally, expect more volatility on markets, and more unease about the prospects for the US and global economies.

Healthy banks, after all, are a key part of any healthy economy.

http://www.globalpost.com/dispatches/globalpost-blogs/macro/moodys-bank-downgrade-its-doozy