Credit rating agency Moody's has downgraded 12 UK financial firms including Lloyds, Royal Bank of Scotland, Santander and Nationwide.

The move comes after Thursday's launch of a second round of quantitative easing as Moody's said it believed the UK government was less likely to support some firms if they got into trouble.

But it stressed that the downgrades did not 'reflect a deterioration in the financial strength of the banking system'.

The news meant the FTSE 100 headed south initially, before recovering. But bank shares fell, with RBS 3.4 per cent lower and Lloyds down 3.9 per cent although they did not plunge immediately and moved on to recover slightly.

Moody's cut its rating on RBS by two notches to A2 from Aa3, and downgraded Lloyds by one notch to A1 from Aa3. It also cut ratings for Santander UK, Co-Operative Bank, Nationwide Building Society and seven other smaller British building societies including Clydesdale Bank.

The downgrade came as a additional blow for 83 per cent-taxpayer-owned RBS, which was forced to defend itself on Friday after the Financial Times speculated that it may soon need another government bail-out.

The bank issued a statement confirming that it remained one of Europe's most strongly-capitalised banks and did not expect any material change to its passing of a regulatory stress test earlier this year, even if it had to book further losses on its bond holdings.

'The design of any new application of the EU stress tests is completely up in the air. Any analysis of how any bank will be affected is nothing more than speculation,' it said in a statement.

'Our peripheral sovereign exposures outside of Greece, which we have already written down to 50 per cent, are circa £1 billion, which are modest relative to core tier one capital of c£50 billion. Any haircut on a new test by the EBA (European Banking Authority) would therefore not change our result materially,' it added.

In response to the downgrade RBS said it 'has already completed its wholesale funding requirements for 2011 and continues to make excellent progress in strengthening key balance sheet measures in the second half to date.'

A statement added: 'We are disappointed that Moody's has not acknowledged the progress we have made in strengthening the bank's credit profile.'

This article was written for our sister website, Interactive Investor