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Moody's Investors Service is downgrading the ratings of 16 Spanish banks because of the country's worsening financial picture.

Moody's lowered its rating by one to three notches on the long-term debt and deposit ratings for 16 Spanish banks and one U.K. subsidiary on Thursday.

Moody's said it took the action because the banks face a rising tide of bad loans with Spain's economy in recession, its real estate market a shambles and its unemployment rate stubbornly high. Spain's banking sector is further threatened by its exposure to the Eurozone debt crisis.

The ratings on the banks now range from low-end investment grade to the high-end of junk status. The country's bank ratings are below most Western European banking systems.