The credit rating agency Moody's has downgraded the senior debt and deposit ratings of twelve UK financial firms, including RBS (down two notches from AA3 to A2), Lloyds TSB (down one notch from AA3 to A1), Nationwide and Santander UK. Nine Portuguese banks were also subjected to the same. While the agency stated that it did not believe that conditions had deteriorated, it attributed the downgrades to the belief that the UK government was less likely to bail out any of the institutions should they get into difficulties.
The removal of implicit government support for the banking sector was welcomed by Lloyds as necessary for the sector in the UK at least to stand on its own once again, however the news prompted falls in all the share prices, including for Barclays whose share price fell in accordance with the other banks despite the fact that it was not downgraded.
The Chancellor George Osborne stated that British banks were among some of the best capitalized in the world, and that the government were taking steps to address the "too big to fail" problem. Of course, detail is scant, and heralding capitalization levels and stress test successes should be taken, one feels, with a Dexia-sized pinch of salt. Moody's split the downgrades into three categories - those institutions still with a high likelihood of government support, a moderate level, and a low level of support. Unsurprisingly, the large banks including RBS and Lloyds fell into the first category, while the smaller institutions were split between the second and third.
While most UK banks have exposure to Irish sovereign debt, they are not exposed to other Eurozone countries in the same way as some of the European banks. There's more on this point, along with discussion of some interesting calculations carried out by French bank Natixis here.