Moody’s warns big banks of possible downgrades

Moody’s Investors Service said Thursday that it was reviewing the ratings of Bank of America Corp. Citigroup Inc. and Wells Fargo & Co. for possible downgrades.

The rating agency gives the three banks fairly strong investment-grade credit ratings. But those grades are based on Moody’s assumption that the federal government would prevent them from failing in a crisis. Moody’s said Thursday that this “too big to fail” presumption may no longer be true.

In a statement accompanying the announcement, Moody’s senior vice president Sean Jones said the Dodd-Frank Act makes clear the government “does not want to bail out even large, systemically important banking groups.” One provision of the Dodd-Frank Act, signed into law last July, aims to make it easier to break up large financial institutions instead of bailing them out.

Moody’s currently rates Bank of America Aa3, Citigroup A1 and Wells Fargo Aa2. Those ratings are between three and five notches higher than where they would be without government backing.

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