Ratings agency Moodys Investors Service has downgraded Spanish government debt one notch as the countrys banking system struggles to meet capital needs, according to The Wall Street Journal. On Thursday, Moodys lowered its rating for Spanish debt to Aa2 with a negative outlook from Aa1 previously, citing the massive capital needs of the countrys banks, even under the best scenario. The report said that the Spanish banking industry needs between 40 billion and 50 billion, although warned that the range could be as high as 110 billion to 120 billion under a more adverse scenario.
Meanwhile, the Bank of Spain issued its own estimate for the countrys banking needs, which it put around 15.15 billion in new capital. The rosier estimate from the government not only contradicted the figures from Moodys, but rival Fitch Ratings also put the figure far higher, at 38 billion to 96.7 billion in new capital. Part of the discrepancy is due to different accounting measures used by the government, although the downgrade has still contributed to renewed fears over the stability of the eurozone as the sovereign debt crisis continues to loom over the region.