Standard & Poor's announced last week that it will review how this month's downgrades to a number of large financial institutions will affect public finance ratings.

The agency will look at the consequences, if any, the downgrades had on letters of credit, standby bond purchase agreements, investment agreements, and other public finance transactions linked to the banks' ratings. It expects to complete the reviews over the next several weeks.

Standard & Poor's on Dec. 19 downgraded 11 U.S. and European financial institutions by one or two notches, citing the weakening economy. The action included drops to the two largest providers of letters of credit this year, Bank of America NA and JPMorgan Chase Bank NA,which both fell to AA-minus from AA. Both retained their short-term ratings of A-1-plus, Standard & Poor's highest ratings.

The agency also that day downgraded the long-term counterparty credit ratings of the core entities of Dexia SA to A from A-plus, in a separate action.

The downgrades to the U.S. institutions came after Standard & Poor's lowered the bank industry country risk for both the U.S. and the United Kingdom, moving them from Group 1 to Group 2 as a result of the difficult economic conditions banks face. Group 1 represents the strongest banking systems.

"The downgrades and revised outlooks reflect our view of the significant pressure on large complex financial institutions' future performance due to increasing bank industry risk and the deepening global economic slowdown," Standard & Poor's said. "We believe significant government intervention intended to stabilize the sector and restore public confidence may balance these pressures to a large extent."

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