The FINANCIAL -- Ratings company Standard and Poor's Corp., said Friday that while it continues to factor into its ratings on systemically important U.K. banks the likelihood of government support, legislative changes in the U.K. banking system may carry broad implications for the ratings on banks over the medium-to-long term, according to London Stock Exchange.

S&P said it believes that in practice the U.K. government cannot yet walk away from systemically important banks without risking the failure of one bank spreading across the system and disrupting the supply of credit to households and businesses, adding that the financial markets remain "shaky."

However, that situation may change as a result of legislative changes under consideration. Indeed, the government now intends to go further, for example, by legislating for structural changes in line with those that the Independent Commission on Banking has recently proposed.

S&P says that if the ICB's recommendations are adopted fully, the legislation would lead to the ring-fencing of U.K. banks' retail businesses, the mandatory bail-in of senior bondholders, and their subordination in liquidation to insured depositors.

They could make it increasingly unlikely that the government would need to support a failing systemic U.K. bank in the future and while the measures would begin quickly, they would take a few years to fully implement, S&P said.

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