Moody's downgrade 'for the banks' own good'

View of a Citibank branch in Washington on April 13, 2012.

Jeremy Hobson: And the big story in global markets this morning is something that happened right after Wall Street closed for business yesterday. The credit rating agency Moody's slashed the ratings of 15 of the world's biggest banks, including most of the big guys here in the U.S.

And that's where we'll start with our New York bureau chief Heidi Moore, who's with me live here in the studio. Good morning.

Heidi Moore: Good morning, Jeremy.

Hobson: Well first of all Heidi, explain why the markets are up after something like that comes out after the markets close?

Moore: Sure. Moody's said that they'd do this way back in February, so it's already been factored in.

Hobson: So we had a little bit of a heads up there. All right, well tell us first what this means for the banks?

Moore: For the banks, it probably means that they're going to have to cough up a lot more money in collateral. So their credit rating makes it more expensive for them to borrow, and they survive by borrowing. So it's just like with your credit card, right -- if you miss a payment or your credit rating goes down, you have to cough up more in fees.

Hobson: And I can do less -- I don't have as much money to spend, I guess. So does that mean that with these banks being downgraded that the economy is going to be hurt on a global scale?

Moore: Yeah. It wouldn't just be this downgrade, but we're seeing pressure from Europe; we're seeing maybe a global financial slowdown; and the banks are already trying to hide in the corner in a fetal position. So, you know, they'll take any excuse not to lend because lending means risk.

Hobson: Now, why were all the banks downgraded at the same time like this? Don't they have different circumstances?

Moore: They do, but Moody's really wanted to treat them as an industry. A lot of them are facing the same pressures; they're trading stocks and bonds. And another reason is that you really don't want to single out one bank. Everyone's haunted by Bear Stears, Lehman Brothers; you want to treat them as equals. But really, this is for their own good -- you know, when your parents would ground you and they'd say "we're doing this for your own good." It's true: Moody's is trying to send the alarm to save money.

Hobson: Marketplace New York bureau chief Heidi Moore, thanks a lot.

Moore: Thank you.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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