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Confidence in UK banking system rocked

Posted By admin Tuesday, October 11, 2011

The security of Britain's financial institutions was called into question today by a leading credit-ratings agency, which said the decreased likelihood of Government backing made them less credit-worthy.

Shock call: The Moody's downgrade came on the heels of an FT article questioning RBS's finances
Delivering a further blow to the markets' shaky confidence in UK banks, Moody's Investor Service cut its rating on Royal Bank of Scotland by two notches to A2 from Aa3, and downgraded Lloyds TSB Bank by one notch to A1 from Aa3.
That means their cost of borrowing in the money markets is likely to increase.
Moody's also cut the credit ratings for Santander UK, Co-operative Bank, Nationwide and seven smaller building societies. The move hit banking shares on the London Stock Exchange, with RBS and Lloyds Banking Group stocks both falling more than 3%.
RBS was already under pressure today after a report in the Financial Times suggested it could require a further bailout from the Government.
The bank said it was 'disappointed' that Moody's had not acknowledged its progress in strengthening its finances since 2008.
Moody's stressed its review did not reflect a deterioration in the financial strength of the banking system or the Government.
'Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift,' it said in a statement.
'However, it is more likely now to allow smaller institutions to fail if they become financially troubled,' it added.

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