Standard & Poor’s downgraded the credit ratings of eight major banks Thursday following the Federal Reserve’s announcement Monday it will adopt a rule limiting bailout powers.
Bank of America, Bank of New York Mellon, Citigroup, Morgan Stanley, JPMorgan Chase, State Street, Wells Fargo and Goldman Sachs are all docked one notch on its standards for the non-operating holding companies.
The systemically important financial institutions were placed on S&P’s negative credit watch Nov. 2.
The new fed regulation puts a Dodd-Frank provision in effect requiring the central bank to limit emergency lending to facilities with “broad-based eligibility” instead of specific firms, preventing it from providing loans to insolvent “too big to fail” companies.
“Based on our review of progress made toward putting in place a viable U.S. resolution plan, we now consider the likelihood that the U.S. government would provide extraordinary support to its banking system to be ‘uncertain’ and are removing the uplift based on government support from our ratings,” the credit-rating agency says.
The rule will require banks to maintain minimum levels of capital to provide a safety net in an attempt to prevent the potential for a sudden collapse similar to what was seen during the 2008-2009 financial collapse.
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