Moody’s rating agency today downgraded five UK banks and seven building societies after reassessing likely levels of government support in the event of a new banking failure.
Five downgraded banks named
The five banks downgraded by Moody’s are: The Co-operative Bank, LloydsTSB, Nationwide, Royal Bank of Scotland and Santander. The agency also downgraded the following building societies: Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire.
In a statement, the agency said: ‘Moody’s reassessment assumes a decrease in the probability that the UK government would provide future support to financial institutions if needed.’
The move follows the report of the Independent Banking Commission, chaired by Sir John Vickers, which advocated the separation of investment and retail banks. The implication of this is that retail banks would enjoy continued government support but that investment- or ‘casino’ banks that got into difficulties might be permitted to fold.
Moody’s acknowledged that its action reflected the ‘removal of systemic support’ rather than any worsening in the strength of the institutions named. Indeed, it noted that it had recently upgraded the standalone ratings of the Co-operative Bank, Nationwide, Santander UK, Yorkshire Building Society and Principality Building Society.
Responding to Moody’s action, Chancellor of the Exchequer George Osborne said: ‘I am confident that British banks are well capitalized, they are liquid, they aren’t experiencing the kind of problems that some of the banks in the euro zone are experiencing at the moment.’
The Moody’s announcement is aimed at investors rather than ordinary savers, whose money is protected by the Financial Services Compensation Scheme. This recently increased its limits to £85,000 per person, per individually-licensed institution and introduced a £170,000 limit for joint accounts. Given the stability of UK banks, there is no need for those with larger deposits to panic, but for greater security savers should spread their money between different institutions.
Which? Executive Director, Richard Lloyd said: ‘Consumers should always limit the amount they deposit with any institution to the compensation depositor protection limit of £85,000. This downgrading does not change that advice.’
The FSCS safety net applies to ‘licensed institutions’ rather than bank brands, so it’s important to check how much cover each bank you are with actually has. Barclays bank accounts are independently covered up to £85,000 each, as are LloydsTSB, RBS and NatWest. The Co-operative Bank shares a licence with Britannia and Smile, while HSBC shares its licence with First Direct, so customers with more than one account in each of these groups will find their cover limited to £85,000 across all of the brands in the group. For full details see the Which? guide Are my savings safe?.
NS&I accounts remain 100% underwritten by the government, regardless of the amount invested in them.