Tuesday, February 2, 2010

British Banks downgraded by S&P

So the downgrading of the country’s credit rating has, as predicted by all and sundry begun. Ratings agency Standard and Poor’s has downgraded the credit rating of British banks blaming an ongoing “weak economic environment” and specifically Gordon Brown’s failure to properly regulate the industry saying “In our view, enhanced regulatory oversight and reform of the framework for financial stability remains incomplete.

The downgrading of British banks means that they are likely to have to pay more to borrow from the wholesale financial markets (People may remember it was a freezing up of these markets that started this entire credit crisis.). Ultimately an increase in wholesale borrowing rates for banks will result in interest rate rises for consumers, with higher mortgage and credit card payments.

British Banks previously held the same credit worthiness as those in France and Germany but have now slipped below Italian and Belgium banks leaving them on the same level as banks in Chile and Portugal. The downgrading brings a true end to the idea of British banks as being the most secure in the world.

S&P’s report also warned that British banks faced a further downgrading by the organisation if the country fails to strengthen it’s economy by tackling what it describes as “persistent budget deficits”.

S&P’s report also blamed “what we see as the high dependence on state-support programs of a significant proportion of the industry.” which follows closely with my post yesterday on the fact that 57% of new jobs created in the past decade are in some way state funded.

The downgrading of bank creditworthiness doesn’t affect the UK’s AAA credit rating as a country but surely can’t be a positive sign. If we lose that too then coupled with the higher cost of borrowing on the wholesale market we’ll see raises in the Bank of England’s base rate as well which means that the average man on the street will finally start to see the affects of this credit crisis in their pocket.

Related Content

1 comment:

  1. S&P one of the very same companies who consistently rated securities as AAA despite them containing large numbers of sub prime loans.
    You will forgive me if I have no faith or interest in the ratings system anymore.
    Anyway the british banks have a nearly bottomless pit of uk tax-payer money so surely they as solvent as can be!