After Moody’s downgrade, will banks need bailouts?
Jeremy Hobson: After U.S. markets closed yesterday, the rating agency Moody’s delivered more bad news — this time to 15 of the world’s largest banks, including the biggest American banks. They’re getting their credit ratings slashed.
And as our New York bureau chief Heidi Moore reports, the fine print of the downgrade hints at more bank bailouts down the road.
Heidi Moore: People only care about banks when they screw up. So let’s cut to the chase: are we going to have to bail these suckers out again? According to Moody’s, if another crisis comes, most of the big U.S. banks are likely to get another government bailout.
Randy Kroszner is a professor of economics at the Booth School of Business at the University of Chicago. He says a good credit rating is a sign of a bank’s ability to survive.
Randy Kroszner: Having a very high rating is crucial, because you want to make sure the person you’re trading with is going to be there down the line.
Moody’s concern is that the banks are still suffering from 2008. They could also be hurt by a European crisis and global financial slowdown.
Kroszner: Some are exposed to more risk than others. The underlying problems are still there.
The Moody’s report said Bank of America, Citigroup and Morgan Stanley have improved since 2008 – but not enough. As for JP Morgan, which just went through Congressional hearings, Moody’s doesn’t think the government would step in to help them.
In New York, I’m Heidi Moore for Marketplace.
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