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In a move that might sound familiar after America's own credit downgrade in August, credit rating agency Moody’s downgraded the ratings of two of France’s largest banks, Société Générale SA and Crédit Agricole SA. Meanwhile, BNP Paribas SA, another major French bank, is under review for a possible downgrade.
Even though they’re in France, these downgrades are directly related to the debt crisis in Greece.
According to The Wall Street Journal, French financial institutions have the most exposure to Greece overall because they own a lot of Greek debt and private loans. That means that, even though the French banks aren't responsible for what's happening in Greece, they're getting hit by those concerns.
Adding insult to injury, the banks have been hurt by the double whammy of Greek debt stress and the fact that many U.S. money market funds have pulled money out of European banks because of the recent uncertainty about the Eurozone. And those money market funds have pulled out of French banks in particular.
The downgrade by Moody’s signifies that the credit rating agency thinks there’s an increased risk of default—in other words, that these French banks are likelier than before not to pay off their debts.
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This trend has left many investors spooked. As confidence about the solvency of European nations erodes, so have deposits at many European banks. It’s been said before (especially around the U.S. bank crisis of 2008) that companies can be toppled by uncertainty and rumors themselves—the more uncertain people are, the more they remove their faith and investments. And the more that that occurs, the more real reason there is for uncertainty.
On the positive side, however, U.S. stocks were on the rise again midday yesterday based on the news that China might actually help support Europe by buying bonds from nations in debt crises.
Here’s what austerity means for Greece: read on.
The U.S. had its own credit downgraded on a national scale this August. We made a cheat sheet to break it down for you.