Standard & Poor's downgrades major U.S. banks

Traders wait for the open in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange on November 2, 2011 in Chicago, Ill.

Jeremy Hobson: I could start by telling you that Italian and Spanish borrowing costs continued their steady climb to unsustainable levels this morning. But frankly, the euro crisis is no longer about individual countries. As the president of the European Council said today in Brussels: The crisis is now systemic.

And there were worrying signs yesterday that it's starting to hit the financial system like it hasn't before -- the American financial system. The ratings agency S&P downgraded all of the big U.S. banks in a lowering of credit ratings that hit 37 financial institutions worldwide.

For more, let's bring in Marketplace's Stephen Beard, who's live with us from London. Good morning, Stephen.

Stephen Beard: Hello Jeremy.

Hobson: How much did Europe factor into these S&P downgrades?

Beard: It is a major factor. The downgrades reflect worries about the global economy and the European debt situation is the biggest worry right now. Not the only one -- America's political deadlock over the deficit is also a factor -- but Europe's the big one.

Here's James Angel of Georgetown University.

James Angel: Clearly with the situation in Europe right now, with all the uncertainty and with all the poltiical gridlock in the U.S., there is certainly a cloud of uncertainty over the world's financial system at the moment.

Hobson: A "cloud of uncertainty over the financial system" -- and Stephen, we know what that looks like. Here in the U.S. we can remember back to three years ago with Lehman Brothers. But this isn't to that level yet, is it?

Beard: Not yet, but it's clear that some large eurozone banks are extremely vulnerable because of their holdings of eurozone government debt. If tany of these governments default, there is a danger it could tip one or more of these banks over the edge.

As we reported yesterday, economists are noticing clear signs of stress from some key indicators. There does appear to be a credit crunch developing in Europe, and that looks ominously like the economic back drop during the financial crisis of 2008, 2009.

Hobson: Marketplace's Stephen Beard in London, thanks Stephen.

Beard: OK Jeremy.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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