Moody's downgrades a dozen UK banks

International ratings agency Moody's Investors Service on Friday downgraded the ratings of a dozen British banks, including government-controlled Royal Bank of Scotland and partially-nationalised Lloyds TSB.

Moody's downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of one institution, concluding its review of systemic support assumptions from the UK government for these institutions initiated on 24 May

According to the ratings agency, the downgrades have been caused by its reassessment of the support environment in the UK which has resulted in the removal of systemic support for seven smaller institutions and the reduction of systemic support by one to three notches for five larger, more systemically important financial institutions.

The announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift.

However, it is more likely now to allow smaller institutions to fail if they become financially troubled. ''The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government,'' clarified the agency.

The rating actions include a one-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of seven smaller building societies.