Last evening, after Australia's East Coast stock exchanges had closed for the day, Moody's Investors Service announced that it had downgraded the Baseline Credit Assessments, long-term ratings and Counterparty Risk Assessments of 12 Australian banks and their affiliates. The ratings agency said this action reflected elevated risks in the household sector which had heightened the sensitivity of the banks' credit profiles to an adverse shock. Under Moody's bank rating methodology, the first stage of the rating agency's credit analysis for banks starts with an assessment of the macro environment in which a bank operates. "Bank failures are very often associated with systemic crises driven by macroeconomics rather than idiosyncratic factors," Moody's stated. "[Our] country level analysis focuses on economic strength, institutional strength, susceptibility to event risk, credit conditions, funding conditions and industry structure." The banks and their affiliates that have been downgraded are: • The four major banks - down to Aa3 from Aa2, • Bendigo and Adelaide, along with Newcastle Permanent Building Society - dropped to A3 from A2 • Heritage Bank, Members Equity Bank, Newcastle Permanent Building Society, QT Mutual Bank Limited, Teachers Mutual Bank, Victoria Teachers Mutual Bank and Credit Union Australia - were all downgraded to Aa3 from Aa2, their BCAs downgraded to a2 from a1. • The remaining banks were downgraded to Baa1 from A3. "The Aa3 stable senior unsecured debt ratings of ANZ, CBA, NAB, and Westpac have been allocated two notches of uplift, reflecting [Moody's expectation] of a 'very high' probability of government support, in case of need." The senior unsecured debt ratings of Bank of Queensland Limited (A3 stable), Bendigo and Adelaide Bank Limited (A3 stable) and Suncorp-Metway Limited (A1 stable) incorporate Moody's "moderate" public support assumptions, which result in a one-notch uplift. The rating outlooks for AMP Bank and HSBC Bank Australia remain unchanged at negative, as a result of the negative rating outlooks for their parent companies. "High and rising household debt in the context of low nominal wage growth [is] … increasing the household sectors and, by extension, the banking sector's sensitivity to a potential shock," Moody's stated in its media release notifying the market of its actions.