Moody’s Goes Downgrade on the Big Cows

Moody’s downgrades big banks

Fifteen global banks suffered credit rating downgrades on concerns over ability to repay debts following significant exposure to volatility in world’s financial markets, a Moody’s Investor Service Report shows. Amongst banks downgraded were Royal Bank of Scotland, Barclays and HSBC.

Deutsche Bank Towers

Deutsche Bank Towers

The Bank of America, Goldman Sachs, Morgan Stanley and Citigroup were also marked down. Others were JP Morgan Chase, Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada. The downgrade would make it more costly for these banks to raise money by selling debt instruments as investors demand higher returns on riskier assets. It may eventually wipe out the little growth spurts the world economy has gained. With interest rates already at rock-bottom levels, some analysts believe the downgrades may not significantly affect the cost of funding for the banks.

Federal Reserve extends ‘Operation Twist’ by $267billion

The Federal Reserve expanded its “Operation Twist” bond swapping program by $267billion. A move to stimulate the US economy presently faced with a fragile recovery amid Europe’s prolonged debt crisis. The programme, originally set to expire at end-June will now run through 2012. It would entail the Fed selling short-term securities with maturities of approximately 3 years or less. These funds would be used to buy longer-term instruments spanning between 6-30 years. This action is expected to ease the credit market constraints and keep interest rates as low as possible. The banking regulator had kept benchmark interest rate at effectively zero since December 2008. The Fed constantly reiterated its view that economic slack may warrant “exceptionally low” interest rates through at least late-2014 as inflation remains in check. The US Commerce Department had recently revised Q1 GDP down to a 1.9% from 2.2%. Subsequently, the Fed in April shaved its economic growth forecast for 2012 to a range of 1.9% to 2.4% from 2.4% to 2.9%.

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