The rating agency Moody’s decreased the credit outlook for more than 80 European banks on Friday (May 30) in response to the new EU law that makes banks mutually responsible for risks in the event of another crisis. The decision emphasized the difficulties of tidying up and underpinning the banking system, which was a target of both political and public outrage during the most recent crises in the eurozone. The new law aims to ring-fence financial institutions, which could spark panic in the system as it was the case during the 2008 financial crisis. Moody’s lowered its forecast for the 82 banks to be able to keep their current credit ratings from “stable” to “negative”. The agency decreased the outlook from “positive” to “stable” for two banks and kept “positive” outlook for four banks. The country that was most struck was Germany, where the agency lowered the ratings of 12 banks. The second most affected country was France with 10 banks with lowered ratings followed by Austria with 8, Sweden with 5, and Italy with 4, the Netherlands with 3, Spain with 2, and one in Great Britain.
The decision of Moody’s has not been embraced by the banks, which are concerned that it comes against the stress tests by the European Central Bank (ECB). The ECB has already pushed banks to make their balance sheets stronger to meet new international regulations. The Frankfurt-based bank has also assumed a new responsibility to face up to pressures such as those of the eurozone debt crises. The ECB is also concerned that the banks, while intensifying their risk profiles, are holding back on providing loans to the corporate sector in the eurozone. As a result, Europe’s main bank is considering easing its monetary policy next week partly in an attempt to address this problem. Public opinion about the banking sector remains low throughout the EU as the banking and financial sectors enjoy high salaries and various benefits despite the fact that banks are thought to be the main source of the crisis.
