Some sort of move by Moody's had been widely expected this week since the agency had put them and rival BNP Paribas on review for downgrade in mid-June.
While cutting its rating on Societe Generale's long-term debt rating by one notch to Aa3 and Credit Agricole's by the same amount to Aa1, Moody's warned that both could have their ratings downgraded by a further notch as it assesses "the implications of the persistent fragility in the bank financing markets." BNP's rating also remains under review.
The downgrades come as Europe scrambles to deal with the Greek debt crisis amid mounting fears that the debt-laden nation may have to default. That would leave some banks holding a lot of debt that might never be repaid, and investors are wondering if the banks have enough of a cushion to absorb those losses.
Because of those fears, some European banks have been having trouble securing the loans they need to fund their day-to-day operations; U.S. money-market funds have seemingly been particularly reluctant, and one European bank was forced to pay higher than market rates recently to get dollar funding from the European Central Bank.
Moody's assessment on Wednesday explored how the banks would weather a significant loss on their Greek debt, and the new review will now look at how much they've been affected by the difficulty to raise money on capital markets.
"Our concern now is more the financing markets of banks. Funding conditions have become more difficult and the risk is that persists and that becomes progressively more negative the longer it persists," said Nicholas Hill, an analyst at Moody's.
The banks, Societe Generale and BNP Paribas, in particular, have denied that the funding difficulties have put them in any real danger, saying that they still have plenty of access to loans.
Moody's maintained its Aa2 rating on BNP Paribas because its profits and capital base "provide an adequate cushion to support its Greek, Portuguese and Irish exposure."
Following the downgrade, Societe Generale said Moody's analysis shows that the bank's exposure to Greece "to be modest and manageable."
Earlier this week, Societe Generale's chief executive Frederic Oudea said that the bank was prepared for a downgrade and that it would not change its outlook.
Christian Noyer, the governor of the Banque de France, also shrugged off the news.
"For me, it's relatively good news," Noyer told French radio RTL. "First, because it's a very limited downgrade, only on two out of three banks, and especially since Moody's rates them better than the other two agencies (Standard & Poor's and Fitch), so, in reality, it put them at the same level or even slightly higher than the other agencies."
Government spokeswoman Valerie Pecresse, who is also the budget minister, reiterated her "confidence in the position of the French banks."
But analyst Louise Cooper of BGC Partners said that there are real concerns about the banks' access to funding.
"Why are share prices then so low and volatile? Because investors are highly skeptical of what they are told. Why are they so skeptical? Because clearly anyone who works in these markets ... will tell you that lending between banks and other financial groups in the short term wholesale markets is anything but normal," she said.
Credit Agricole did not comment on the downgrade specifically but said in a statement that its retail bank will put in place a general guarantee of the investment banking subsidiary. The retail bank, Credit Agricole SA, is generally considered to be in a stronger position than the investment banking arm.
The statement seemed aimed at reassuring investors of the level of support available to the investment bank.
It may have worked: Credit Agricole was the only one of the three banks whose shares were trading higher on Wednesday afternoon. They were up 3.2 per cent.
Societe Generale was down 2.8 per cent, while BNP Paribas was also pressured even though it wasn't downgraded. Its share price fell 2.2 per cent.
Sylvie Corbet contributed to this report.