CFR Update: Moody's Downgrades Fifteen Global Banks

Top of the Agenda: Moody's Downgrades Fifteen Global Banks

Credit rating agency Moody's downgraded fifteen global banks yesterday--including five of the six largest U.S. banks--in a move that could raise the banks' borrowing costs and decrease trading revenue (WSJ). Moody's said the banks were downgraded because of their exposure to the "volatility and risk of outsized losses inherent to capital-markets activities." The downgrades comes amid growing concern over the liquidity of global banks and their ability to withstand an onslaught of economic pressures emanating in part from the ongoing eurozone sovereign debt crisis.

Analysis

"And even if they had such firepower, the rescue funds' intervention might prove counterproductive if bondholders fear that big purchases by the funds are merely pushing other investors back in the queue of creditors. For the eurozone to find its way through this crisis, intervention in bond markets needs to be combined with a bolder overhaul of the system itself. As we have argued, that means a detailed plan to build a banking union and to mutualize some debt," says the Economist.

This effort won't be seen as serious, let alone adequate, unless at least a trillion euros are on hand. Indeed, setting any upper limit on the resources available risks neutralizing the initiative. To stabilize Europe's economies, the EU has to surprise the markets with a newfound clarity of purpose. No more half-measures. It's time for shock and awe," says this Bloomberg editorial.

"As financial markets slide toward disaster, scarcely pausing to celebrate the 'success' of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe--and it is not Greece, Italy or Spain," writes Anatole Kaletsky for Reuters.