Bank of America Corp. and Wells Fargo & Co. had long-term credit ratings downgraded by Moody's Investors Service, which said U.S. support has become less likely if lenders get into financial trouble.

Citigroup Inc.'s short-term rating also was cut by Moody's, which said today "there is an increased possibility that the government might allow a large financial institution to fail, taking the view that contagion could be limited." Citigroup's stand-alone credit has improved, Moody's said in a statement, leading the service to confirm the bank's long-term rating.

The downgrade questions whether the largest banks will always be "too big to fail," a status conferred in 2008 when they received government rescues to keep the financial system from collapsing. Lawmakers have since overhauled regulations to head off a repeat of the bailouts and ordered regulators to set up a system for seizing and dismantling banks that founder.

Bank of America, the biggest U.S. lender by assets, had its ratings cut two levels to Baa1 from A2 for long-term senior debt, and to Prime-2 from Prime-1 for short-term debt, Moody's said. The outlook for long-term senior ratings at the Charlotte, North Carolina-based company remains negative, indicating another cut may be ahead.

Eoin Treacy's view If one considers the current sense of anxiety among investors then the likelihood of the USA allowing a major bank to seek bankruptcy appears very low. The risk of contagion from the Eurozone crisis is high and the reverse is also true. Nevertheless, the downgrade of such high profile banks does nothing for confidence and the financial sector remains a headwind for the wider stock market.

The S&P500 Banks Index fell to retest the lower side of the six-week range today. A sustained move above 120 will be required to question the consistency of the 7-month downtrend.

The S&P500 Diversified Financials Index posted a new closing low yesterday and extended the decline today. A clear upward dynamic will be required to question supply dominance while a rally above 260 would question the consistency of the 7-month downtrend.