Moody Casts Doubt on Banks

by Mark Johnston

This week has produced a stark revelation about the apparent insecurity within the banking industry.  Moody, a well respected company which performs international financial research and analysis on commercial and government entities, has come out and said that it may downgrade 14 UK lenders.   

Lenders such as Lloyds Banking Group, Royal Bank of Scotland, Santander, Bank of Ireland and Nationwide building society are causing some concern and may be downgraded.  HSBC Bank plc and Barclays Bank are both no longer considered “stable” but now are viewed as “negative” and will be kept in mind with a view to downgrading their credit ratings.

This change in direction has come about due to the UK government’s apparent reluctance to bail out lenders in the future and the bloated size of the banking sector in relation to the UK economy.

All UK banks count for more than 4 times our annual GDP, contrary to the situation in many other developed countries.  Sir John Vickers is the man tasked to protect taxpayers from a repeat performance of 2007 where the view was that some banks were too big to fail.

A senior banker said ‘It is an irony that this Moody’s report suggesting the banks are now less safe comes just as the Independent Commission on Banking is putting forward its recommendations which are supposed to make the system a safer one.’

Vickers has proposed that the capital buffers be increased and that the risky sides of these banks be ring fenced off from the day to day savings and loans.

‘There are always going to be circumstances where the government will feel committed to come to the rescue of banks,’ he said. 

A further and startling revelation was when Vickers admitted that some of the bankers bonus may very well have been funded by the billions of pounds that the government shovelled into the industry.  Interesting conundrum, the public have been advised that unless billions is funnelled in, the entire banking system would bring the country to a standstill but then some banks use this money to pay millions in bonuses for an apparent job well done.

The banks have been given one primary objective by the government, that is to lend to organisations and individuals to help kick start the economy.  The banks claim that they are pulling out all the stops in an effort to comply but they said that the demand for loans is lacking.  Some groups who represent business have complained that they have received bad treatment from the lenders and that they are subject to unnecessarily high interest rates and quite onerous term and conditions. ‘The reality is that there has been a breakdown of firms’ trust in us. We have to rebuild that and we have done a fairly lousy job of it so far,’ quoted from a banking insider.



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