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Bank Review 'will Push Up Cost Of Borrowing’

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One of the world’s largest credit ratings agencies, Moody’s, said it was reviewing the credit status of British banks and warned that it was preparing to reduce the rating awarded to many institutions.

These ratings are crucial for banks and building societies as they determine the price of borrowing for banks on international financial markets.

Banks with a lower credit rating will pay more – and the extra costs will be passed on to consumers who will face higher mortgage, loan and credit card rates.

The move came as the eurozone was plunged into crisis after Portugal formally requested an international bail-out.

Finance ministers will today meet in Budapest to thrash out a rescue package. It is expected to involve international loans of more than €70 billion including about €4.4 billion (£3.8 billion) from British taxpayers. However, there is growing optimism that Spain will avoid a bail-out.

Moody’s has decided to intervene ahead of the publication on Monday of an interim review of Britain’s banks after ministers said financial institutions should not be “too big to fail”.

The review – by Sir John Vickers, the former head of the Office of Fair Trading – is expected to recommend that risky divisions of banks hold sufficient capital reserves to insure against investments that may lose money. They may also face curbs on speculating using their own money, so-called proprietary trading.

Currently, the retail banking arms of high street banks, which hold people’s savings and investments, have to cover losses made by the investment banking wings. This has meant that the Government has had to step in to bail out banks when the savings of millions of people are under threat. However, Sir John is understood to have rejected calls to order the break-up of banks, where high-street institutions would be forced to sell off their investment banking wings.

The Liberal Democrats and Mervyn King, the Governor of the Bank of England, had called for such break-ups. Yesterday, banking shares rose sharply amid speculation that the Government would not introduce onerous new rules.


But the government will still have cheap financing, that's the main thing.

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