Moody's expected to downgrade UK banks tonight

The market has been awaiting the news of a review by Moody's ever since the agency first announced in February that it was looking at more than 100 financial institutions in Europe and a handful of US banks. Back in February, Moody's warned that Royal Bank of Scotland, 83% owned by the taxpayer, faced a one notch downgrade and Barclays and HSBC a downgrade of up to two notches. Lloyds Banking Group is also among those facing a downgrade. A downgrade can raise the borrowing costs of banks (as they may be deemed slightly less likely to pay back any loans) and also require them to post collateral against existing positions. RBS, for instance, has already warned that a one notch downgrade by a ratings agency could cost it £12.5bn in having to post extra collateral to some creditors although analysts reckon that markets had been well prepared for any downgrades to the UK major banks. The review took two formats. The one for investment banks - which covered Barclays, RBS and HSBC - looked at " structural vulnerabilities in the business models of global investment banks, which include the confidence-sensitivity of customers and funding ounterparties, risk-management and governance challenges, as well as a high degree of interconnectedness and opacity". There was also one for European banks which looked at a number of areas including the "very difficult" operating environment in Europe.