Lloyds among 14 banks facing a debt rating downgrade

Royal Bank of Scotland and Lloyds Banking Group are among 14 UK banks that have had their debt ratings put on review by Moody's for a possible downgrade because they can no longer rely on a Government bailout.

Santander, Nationwide and a string of smaller building societies are also on the list for potential downgrading.

Barclays' outlook was today moved from stable to negative.

"The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the Government," said Elisabeth Rudman, Moody's lead analyst for a number of UK banks. "It has been initiated in response to ongoing guidance from the UK authorities - the Bank of England, the Financial Services Authority and the Treasury - that banks that fail in the future should not expect capital injections from the public purse."

Arturo de Frias, top bank analyst at Evolution Securities, said he was not expecting "multi-notch downgrades" when Moody's finally reports in about three months. But he still expected the costs of funding for UK banks to rise and said they may not be able to pass all of this on to their customers.

Lower debt ratings mean that bondholders demand higher interest rates in return for increased riskiness.