The decision by Moody’s Investors Service on Thursday to downgrade the credit ratings of 15 global banks and securities firms will have a negative impact on borrowers as well as the banks themselves.
The downgrades of financial institutions such as Citigroup, Bank of America, J.P. Morgan, Barclays, and Goldman Sachs reflect Moody’s concern over the ability of the banks to repay their debts during times of crisis.
The result: Credit could become costlier and/or harder to obtain.
Since the cost of doing business for these giant financial institutions will go up as a result of having their rating lowered, the banks could pass along their higher costs — such as the higher interest rates they will have to pay to borrow money.
Or the institutions will have lower profits, which will inhibit their ability to lend.
“The Moody’s downgrade is not a positive for anyone,” said Sung Won Sohn, a professor of finance at California State University, Channel Islands, and a former banker. “The lower ratings means their ability to lend will diminish.”