Four UK banks hit by ratings downgradeWhich? calls for brand level bank protection

22 June 2012

Lloyds TSB Branch

Four UK banks, including Lloyds, grapple with the latest downgrade

Four UK banks have been downgraded by credit rating agency Moody's. Royal Bank of Scotland, HSBC, Barclays and Lloyds are among 15 global banks affected.

The downgrading of a select group of major financial institutions was justified by Greg Bauer, Moody's global banking managing director, who said the banks had 'significant exposure to volatility and risk of outsized losses'. Some of the affected banks have been warned that they could face further downgrades.

Downgrades raise concerns for bank customers

While it is not clear what the impact of the downgrades will have on the banks and their customers, any downgrade in status could make it harder for the affected institutions to borrow money, and an effect on mortgage rates.

It could also raise concerns about the stability of the banks, and the level of protection consumers with savings have.

Which? calls for government to increase consumer protection

Richard Lloyd, Which? executive director said: 'The exact impact this credit rating downgrade will have on consumers is uncertain but there are steps people can take to protect their money. 

'People should spread their money across different banks and make sure their cash is in an account covered by the UK compensation scheme, which guarantees savings up to £85,000 per person, per financial institution.'

'But the Government should move now to ensure this protection is offered at a brand level rather than by banking institution. With the many bank merges and takeovers of recent years it is unrealistic to expect consumers always to be aware of who owns their bank and whether their money is fully protected.

Potential increases in mortgage rates

Richard Lloyd added that this announcement 'will also lead to speculation that it will cause a further rise in mortgage rates.'

'For too long banks have taken advantage of the lack of competition on the high-street to increase the interest rates charged on mortgages, loans and overdrafts, with over 1 million consumers seeing their yearly mortgage payments increase by over £300 million with the Standard Variable Rate rises earlier this year. 

'This is why we cautiously welcomed the Chancellor's recent "funding for lending" scheme. But we want to see strong safeguards in place to ensure that banks pass on this cheap credit to consumers.'

More on this...

  • Consumer protection for savers explained - A guide to the Financial Services Compensation Scheme
  • The best savings accounts revealed - Which banks offer the best rates on savings accounts 
  • Watchdog not Lapdog Campaign - What Which? wants from the new financial regulator