Moody’s sliced the credit ratings of a dozen British financial companies today, including two of the UK’s "Big Four" lenders, Lloyds and Royal Bank of Scotland, both of which were partially nationalized during the financial crisis. Moody’s explained that it "believes that the government is likely to continue to provide some level of support to systemically important financial institutions" but that "it is more likely to now to allow smaller institutions to fail."
RBS’s rating dropped two levels, from Aa3 to A2; Lloyds also fell from Aa3, but only dropped one notch to A1. Shares of both banks fell on the news, with RBS down 1.8% and Lloyds down 2.6%, according to Reuters, which notes that both banks are trading well below the level taxpayers paid for their shares. Lloyds said the downgrade would have only a "minimal impact" on its funding costs. (Read more Moody's stories.)