The ratings agency lowered each of its ratings one notch, citing high levels of consumer debt and high home prices as threats to the Canadian economy. Moody's had put all six banks under review in October.
"High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces," David Beattie, vice-president at Moody's said in a note.
Canadian consumer debt has risen to a record-high 165 per cent of disposable income in the third quarter of 2012, up from 137 per cent in mid-2007. Bank of Canada governor Mark Carney has repeatedly warned about these levels, but they remain stubbornly high.
Canadian banks 'soundest in the world'
Finance Minister Jim Flaherty was quick to reiterate his confidence in Canada's banking system.
"For five years in a row, the World Economic Forum has ranked Canada's banking system as the soundest in the world," Flaherty said in a statement, adding that even after the downgrades, "Moody's rating of Canadian banks continues to be among the highest in the world."
TD, Canada's second-largest bank by market capitalization, had its pristine top-level Aaa rating dropped to Aa1, while Bank of Nova Scotia and Desjardins were dropped from Aa1 to Aa2. BMO, CIBC, and National Bank of Canada were dropped from Aa2 to Aa3. The outlook for all six banks remains stable, and their short-term credit ratings were re-affirmed.
Royal Bank of Canada, Canada's largest bank, was the only one of the Big Six banks to be unaffected by the downgrade.
The downgrades echo those made by S&P in December, which lowered its ratings for six Canadian banks including Bank of Nova Scotia and National Bank.