New York, NY, United States (AHN) – Moody’s Investors Services downgraded the senior debt and deposit ratings of 30 smaller Spanish banks Thursday.
The agency cited more financial pressure on Spain’s sovereign rating for the downgrade.
Among those affected are 15 banks whose ratings went down by two levels and five banks which suffered three or four downgrades.
Moody’s said the Spanish government would soon have to make the hard choice between supporting the banks and the need to protect the country’s coffers. Moody’s opined that the Spanish government is not prepared to support all these banks financially.
The downgrade reflects the turmoil facing Spain’s banking industry, which was weakened by the collapse of the real estate industry.
If the Spanish government would shore up the smaller banks, the Madrid government may face the same financial crisis that hit Ireland, which was forced to accept an international bailout and eventually led to the collapse of the Irish coalition government.
None of the large Spanish banks are included in the Moody’s downgrade because the government is not prepared to let systematically important financial institutions fail.
According to Alastair Wilson, Moody’s chief credit officer for Europe, the Middle East and Africa, the downgrade of the smaller Spanish banks is the initial step in a wider review of systemic support available to smaller institutions. Wilson added Moody’s will eventually perform country-by-country reviews of banking systems.
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