Coordinated efforts by the world's major central banks to head off the risk of a credit freeze sent stocks of the largest U.S. banks surging Wednesday, even after Standard & Poor's cut the banks' credit ratings in a revamp of its criteria for assessing their risks.
The KBW bank index tracking major financial institutions rose 3.4 percent in opening trading, and shares of some major banks rose nearly 6 percent.
The central bank measures taking effect Monday are intended to expand foreign banks' access to the U.S. dollar when they need it, reducing the chance that Europe's debt crisis or other economic strains will lead to a credit crunch like the one that followed the 2008 collapse of U.S. investment bank Lehman Brothers.
The central banks also announced plans before U.S. markets opened Wednesday to ensure banks can readily access cash in any currency if market conditions warrant. Participants include the U.S. Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada, Japan and Switzerland.
The announcement follows a recent spike in borrowing costs for debt-burdened European nations such as Italy and Spain, elevating the risk of a default that could trigger a seize-up in lending across Europe and potentially elsewhere. Such a freeze could push European countries into a deep recession, elevating credit risks for many large U.S. banks whose financial ties extend across the Atlantic.
The central banks' announcement sent global markets up sharply. U.S. stocks followed suit after the opening bell in New York. The announcement also helped deflect disappointment after finance ministers of European Union countries delayed action on proposals to save their common currency, the euro, until their bosses meet next week in Brussels.
Stocks of major U.S. banks had already risen slightly in premarket trading before the central banks' announcement, as investors appeared to brush off the credit downgrades that S&P announced after markets closed Tuesday. Bank of America and its main subsidiaries are among the institutions whose ratings were cut by at least one notch, along with Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co.
S&P said the cuts incorporate shifts in the industry and the role of governments and central banks worldwide. It wasn't immediately clear how the new moves by the central banks might affect those ratings.
A Citi Investment Research analyst said he didn't see major implications from the downgrade, even before the central banks' announcement. The analyst, Keith Horowitz, wrote that S&P published new ratings criteria earlier this month, leading to expectations that the ratings might be cut once the criteria were applied. Horowitz said the likelihood of ratings downgrades had already been priced into shares.
Horowitz called the impact of the downgrades "minimal" on Goldman Sachs and Morgan Stanley. Bank of America, he said, "has long anticipated lower ratings, and took steps to mitigate the impact." Those include plans to reduce reliance on short-term borrowing and to cut long-term debt $70 billion to $120 billion by the end of 2013.
However, Horowitz called the lower ratings "a modest negative" because they could drive up long-term funding costs. For example, the downgrade could trigger provisions in derivative contracts that require banks to put up more collateral.
In opening trading, shares of Bank of America rose 28 cents, or 5.5 percent, to $5.35. The stock regained all of its 3.2 percent loss Tuesday, when shares hit their lowest point since the depths of the economic crisis in March 2009.
Shares of Goldman Sachs gained $3.79, or 4.3 percent, to $92.60, while Morgan Stanley added 73 cents, or 5.5 percent, to $14.04. JPMorgan Chase rose $1.35, or 4.7 percent, to $29.91, Citigroup jumped $1.33, or 5.3 percent, to $26.57, and Wells Fargo added 86 cents, or 3.6 percent, to $24.94.