Moody’s Cuts Debt Of 4 Major U.S. Bank Holding Companies

David Henry, Lauren Tara LaCapra, Peter Rudegeair and Douwe Miedema, Reuters

Moody’s Investors Service cut the debt ratings for four big bank holding companies, including Morgan Stanley and JPMorgan Chase & Co, citing its increasing confidence that the U.S. government will not bail out the companies if they fail.

The cuts may increase banks’ borrowing costs and force them to post more collateral in derivatives trades, weighing on their profits. The downgrades also underscore how regulators are successfully convincing at least some parts of the bond markets that in a crisis, investors in the bank holding companies will likely have to take losses.

The Federal Deposit Insurance Corp has hosted dozens of meetings with bond investors, analysts, and other stakeholders since last year to explain how this scenario would play out.

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