Financial regulatory measures may have finally caught up to the ability of some large banks to stabilize their balance sheets. This problems sits side-by-side with the foreclosure document scandal which has left financial firms with potential liability and has shaves huge amounts off the market capitalization of several large banks–most notably Bank of America (NYSE: BAC)

Fitch, the credit rating agency may downgrade the debt of several of the largest banks in the US.

Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies’ Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc. This is due to the fact that both entities’, and their related subsidiaries’, Issuer Default Ratings (IDRs) and their respective senior debt obligations have benefited from support provided by the U.S. government.

In other words, a nearly wards of the state, the banks had some safety net for balance sheet problems. That is no longer true.

Over the near to intermediate term, Fitch’s fundamental credit assessment of Bank of America and Citigroup will continue to consider existing support already received, such as debt still outstanding issued under the Federal Deposit Insurance Corp. (FDIC’s) Temporary Liquidity Guaranty Program (TLGP), in its ratings of those institutions

The Fed, FDIC, and Treasury Department may have saved the bank system, but what the federal government giveth, it can also take away.

Douglas A. McIntyre

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