Systemic risk legislation may hurt bank ratings-S&P

NEW YORK, Nov 4 (Reuters) - Congressional legislation aimed
at minimizing systemic risk in "too big to fail" financial
institutions may adversely affect ratings among all financial
firms, Standard & Poor's said on Wednesday.

The U.S. House of Representatives' released a draft last
week of the Financial Stability Improvement Act, which would
implement ways to monitor risky institutions and overhaul the
financial system by widening the Federal Reserve's regulatory
authority. For more, see [ID:nN27270990]

But if passed in its current form, the legislation could
result in widespread downward pressure on bank ratings,
according to S&P.

"The proposed legislation's stated goal to let unsecured
creditors of troubled institutions suffer losses to avoid moral
hazard not only increases the chances that individual
institutions would default, but could make funding for the
industry more volatile during periods of stress," S&P said in a
statement.

Changes in the way the agency views industry-wide risks and
support within the entire banking system may affect smaller,
less diversified financial firms in addition to the larger
ones.

Any ratings impact from the House Financial Services
Committee's draft is uncertain for now, S&P said.
(Reporting by Camille Drummond; Editing by Diane Craft)