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Moody’s cuts ratings of major international banks

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Jeff Horwich: Moody’s has downgraded the credit ratings of 15 banks in Europe and North America — that continues to rattle markets in Asia and Europe today so far.

Marketplace’s New York bureau chief Heidi Moore is here with me live. Good morning, Heidi.

Heidi Moore: Good morning, Jeff.

Horwich: So, why downgrade all these banks at once, and why now?

Moore: It’s a variation of: if you have to bring candy into the class, you bring some for everyone. So basically, they want to treat the entire industry as an equal; they’re saying they’re all facing the same kinds of stress. And it also makes sure that less of the banks bear the brunt of a single downgrade — you don’t want to single out one bank.

Horwich: Sure. And why would Moody’s do this now? What’s their concern?

Moore: Well, their main concern is that the banks need to build up their balance sheets. We’re in a global credit crunch; it’s happening as we speak. And some of these banks really cannot absorb that, specifically — according to Moody’s — Bank of America and Citigroup and Morgan Stanley are in a tenuous situation. So, they want to put out a warning. But they warned these banks way back in February, so this isn’t a surprise.

Horwich: What’s the impact on the banks from the downgrade?

Moore: Well, the impact on them is that it makes it more expensive to borrow. What we found out in 2008, of course, is that banks borrow in order to exist — they borrow every single night. So their credit will slow down. It will make it harder for them to do business and that will make it harder for consumers to borrow; and businesses will probably pull back. I mean, if we’re talking about a global credit crunch caused by the euro crisis, that is going to affect every aspect of business. So if anything, Moody’s is just raising the alarm.

Horwich: Thanks very much, Marketplace’s New York bureau chief Heidi Moore.

Moore: Thank you.


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