NEW YORK, NY -- (Marketwire) -- 06/03/11 -- Nearly a year after being passed, the Dodd-Frank financial reform laws continue to cast a shadow over the Major Banking Sector. Major Banks have already begun to restructure various programs involved with and the methodology behind debit card usage in response to the Dodd-Frank Act's Durbin amendment that restricts bank's ability to charge fees for debit card transactions to cover their costs. In addition, the debt ratings of some major banks are now being called into question amid regulatory concerns. The Bedford Report examines the outlook for companies in the Financial Sector and provides equity research on Bank of America Corporation (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC). Access to the full company reports can be found at:
Earlier this week Moody's Investors Service said it may downgrade the debt ratings of Bank of America Corp and Wells Fargo & Co, amid concerns about the regulatory environment facing the largest US banks. Moody's explained that the current ratings are buoyed by "uplift" from the government support of the banking system during the financial crisis. But the Dodd-Frank financial reform law of last year has changed the level of government support that large US banks can count on, meaning such uplift may no longer be appropriate.
"The U.S. government's intent under Dodd-Frank is very clear," said Moody's Senior Vice President Sean Jones. "The support assumptions built into these banks' ratings are unusually high, which may no longer be appropriate in the evolving post-crisis environment."
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Moody's rates Bank of America and Wells Fargo's senior subordinated debt at A2 and A1, respectively. All denote satisfactory credit quality. The review doesn't affect the banks' debt that is guaranteed by the Federal Deposit Insurance Corp, which remains stable at Aaa, the highest possible rating.
Bank of America spokesman Jerome Dubrowki wrote that the bank believes its "standalone rating should be higher given the progress we have made to strengthen our balance sheet, improve capital and liquidity, and reduce our risk profile."
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