On May 19, 2025, Moody’s Investors Service downgraded the long-term credit ratings of three major U.S. banks—JPMorgan Chase, Bank of America, and Wells Fargo—from Aa1 to Aa2. This move came shortly after Moody’s downgraded the U.S. government’s own sovereign credit rating from Aaa to Aa1, citing concerns over the growing national debt, which has now exceeded $36 trillion.
Moody’s stated that one of the key reasons for downgrading these banks was the reduced capacity of the federal government to support them during a financial crisis. These institutions are considered “systemically important,” meaning their failure could disrupt the broader economy. Historically, their ratings have been buoyed by the belief that the government would step in to help if needed.
The downgrade also affected related institutions such as BNY Mellon and State Street, which saw reductions in their long-term deposit and counterparty risk ratings. Moody’s noted that the downgrade of the U.S. sovereign rating directly reduced the perceived level of support these banks could count on from the federal government.
At the same time, political tensions have added uncertainty. A new tax bill proposed by President Donald Trump initially failed to pass a key procedural vote due to disputes over spending cuts. Though it later advanced in Congress, the delay highlighted governance concerns that also factored into the credit outlook.
Despite the downgrades, market reaction was mixed. As of May 21, 2025, JPMorgan Chase’s stock rose slightly to $265.68, while Bank of America and Wells Fargo experienced modest declines to $44.69 and $75.52, respectively.
Why the U.S. Bank Downgrade Matters for Everyday Americans
For most people, credit ratings might seem like distant numbers that only concern investors or big institutions. But when the credit rating of major banks—and the U.S. government itself—gets downgraded, it has ripple effects that touch everyone.
First, a downgrade signals that lenders view these entities as slightly riskier than before. That can lead to higher borrowing costs. For banks, this might mean paying more to issue bonds or raise capital, costs that can ultimately be passed down to consumers in the form of higher interest rates on loans and credit cards.
Second, the government’s reduced financial credibility can affect everything from mortgage rates to the cost of funding public services. If the government has to pay more to borrow money due to a lower credit rating, it could lead to higher taxes or spending cuts to compensate.
Third, the downgrade reflects a loss of confidence in the ability of political leaders to manage fiscal policy effectively. This increases the likelihood of market volatility, which can affect retirement accounts, job stability, and general economic growth.
Finally, the notion that the federal government might not be as reliable a backstop during a financial crisis is concerning. In the past, this support helped prevent widespread collapse during turbulent periods, such as the 2008 financial crisis. Without that assurance, both banks and the broader economy are more exposed to systemic risk.
In short, while the downgrade may seem like a technical adjustment, it underscores deeper problems in national financial management—and those problems have real-world consequences for ordinary people.
