The ratings agency Moody’s reduced the credit ratings of 15 large banks yesterday, in an action that cast a poor light on both the banks and the ratings agencies, if that’s possible.

First, here are the facts, and you’ll see that this was expected for some time:

The credit agency, Moody’s Investors Service, which warned banks in February that a downgrade was possible, cut the credit scores of banks to new lows to reflect new risks that the industry has encountered since the financial crisis.

“The risks of this industry became apparent in the financial crisis,” said Robert Young, a managing director at Moody’s. “These new ratings capture those risks.”

Citigroup and Bank of America, which have struggled to fully recover from the financial crisis, were among the hardest hit. After the downgrades, the banks stand barely above the minimum for an investment grade rating, a sign of the difficult business conditions they face.

In case you’re wondering, yes, JPMorgan Chase, they of the “fortress balance sheet,” was also affected by the downgrade, falling two notches. Others included Morgan Stanley, Goldman Sachs, Credit Suisse, Deutsche Bank, UBS, HSBC, Barclays, BNP Paribas, Credit Agricole, Societe Generale, Royal Bank of Canada, and Royal Bank of Scotland. Morgan Stanley in particular got downgraded two notches, after being threatened with a downgrade of three notches.

This is basically a reaction on the part of Moody’s to their industry’s failures during the financial crisis. But it’s also a symptom of them. Among the reasons for these downgrades include long-known weaknesses like risky investment bank gambling or headwinds in Europe and their effect on the financial system. The banks claim, in fact, that the current ratings don’t take into account increased capital or declines in proprietary trading.

But this in itself shows the emptiness of the banks’ claims. They keep shouting about capital reserves, but they ignore the fact that new “mark-to-myth” accounting standards allow them to label virtually anything as capital. There’s substantial reason to believe that these so-called assets are fictional. For example, banks continue to hold worthless second liens on their balance sheets as assets.

Moreover, the Fail Whale trades at JPMorgan Chase (cited by Moody’s in their downgrade review) showed that virtually nothing has changed in the industry with respect to risk management. Finally, Moody’s noted that banks still finance themselves with short-term loans that could easily dry up in the event of another crisis. And when you look to Europe and the widely increasing cost of the bank bailout, you can see how that crisis could emerge on the horizon. The regulators still don’t understand what the banks are doing, the profits can still vary widely from one quarter to the next, and the banks themselves appear too big to manage.

Despite all the propaganda you hear, banks still have fragile balance sheets, still take on incredibly dangerous risk, and still are exposed to the next crisis. Which could come sooner rather than later.