An Asian reality: For export oriented Asian companies highly dependent on the US and Europe, this is bad news. This downgrade affects their EU and US counterpart importers who are no longer able to obtain short term credit facilities, bank guarantees they've been used to. Some of our clients are now coping with orders that are delayed, cancelled or put on hold.

Timing: Moody's was very late in responding to the financial crisis, and may not want to repeat that. However, given the situation in Europe and the link between European sovereign debt and US banking debt, I would say that the downgrades were expected, and already priced in judging by the market reaction right after the downgrade.   

Two signals:  Moody's downgrade reflects the economic and regulatory conditions that are working against the banks. Both as a signal the supportive environment provided by the US and EU governments to struggling banks wont be there in the future and as a sign and catalyst for them to align with Basel III requirements and follow the trend that authorities and regulators desire: to separate investment banking from retail banking.   

Less corporate lending: Inevitably after major banks are downgraded, trade finance will be affected, since bank-lending capacities will decrease. These banks will have to keep cash on their balance sheets and place it as collateral for live derivatives transactions they have completed.  This relates to ratings triggers which are part of new regulation, imposed by Basel III, concerning collateral agreements governing derivatives transactions.

Higher interest rates Another reason that will affect trade finance is the effect on the money market. Bank creditors will seek safer investment/lending or increase their lending fee. To maintain profits, bank will also pass such increases through their lending fees, at least partially, to borrowers, making capital more expensive. This should be limited to a certain degree if banks wish to remain competitive.

Higher counterparty risk: With higher interest rates and less lending capacity, banks are more reluctant to lend, to issue LCs and other similar guarantees to smaller businesses. They are conducting little at the moment already, fearing counterparty defaults and an inability to meet the new regulations.

Negative growth effect: This downgrade inevitably poses the question of how to maintain growth with less capital available. Less capital available for trade finance, means less output from small and medium size businesses, that leads to less growth, lower GDP, etc. 

Banking relationship: I believe transparency, trust and credibility is the cornerstone of the relationship between bank and borrower. Strong partnership between lenders and borrowers may give flexibility to the bank to make concession to borrowers that would not be obtained in normal circumstances.        

Alternatives trade financing:  Within this context, global finance will take a new direction and alternatives to the traditional LC financing will be necessary.  This could include: open account trading, international factoring, securitzation and structured trade finance.