Standard & Poor's lowers ratings on major U.S. banks

Standard & Poor's slashed the credit ratings of the holding companies for eight major global banks amid growing evidence that the U.S. government would not bail them out in the event of another financial crisis.

The move comes after the Federal Reserve on Monday adopted a rule that would limit emergency loans to failing companies, formalizing a policy that was central to Congressional reform efforts in the wake of the global financial crisis of 2008.

The rule would have prevented the Fed from bailing out AIG and Bear Stearns during the global financial crisis that crunched the credit markets in 2008 and 2009. The Fed could still provide liquidity to a general program designed to improve credit availability to struggling markets, and Congress could yet decide to intervene at any time.

"Although we do not rule out the possibility that a U.S. (major bank) could receive extraordinary government support if an orderly liquidation proved more disruptive than expected, the predictability of such support, in our view, has significantly declined such that we view it as uncertain," S&P said.

The downgrade affects the holding companies for Bank of America, Bank of New York Mellon, Citigroup, JPMorgan Chase, Morgan Stanley, State Street, Goldman Sachs and Wells Fargo.

S&P maintained current credit ratings for the operating units of those banks.

The ratings agency noted that new Fed rules will require banks to bolster their capital reserves to guard against potential losses, theoretically limiting the chances of a sudden collapse.

The Fed rules derive from the Dodd-Frank Act, which increased regulatory oversight of Wall Street in the wake of the Great Recession.

Follow Paste BN reporter Nathan Bomey on Twitter @NathanBomey.