Italian banks affected by the threat of downgrading by Moody (AP)

Milano-Italian banks were down sharply on the Milan Stock Exchange Friday after rating Agency Moody's said it was considering lowering their credit worthiness.

Unicredit Bank shares in the country's largest, were down 8 percent in late morning trading on Friday. Intesa Sanpaolo, second largest bank of Italy and Monte Paschi were also down.

In a report released late Thursday, Moody's Investors Service's placed the rating for long-term debt and deposit of 16 Italian banks and two Italian Government related financial institutions on the review for a possible downgrade.

The Agency also changed the rating Outlook to negative from stable on the long-term debt rating and a further 13 Italian banks,

The move comes after Moody's put Italy's public debt on review for possible downgrade on concerns about low growth and high public debt, which, at about 120 percent of GDP, is one of the largest in Europe.

Treated Italy of Moody another shot recently placing several English-government related issuers on review for a possible downgrade. These include energy companies Eni and Enel SpA SpA, engineering and construction company Finmeccanica SpA and Poste Italiane SpA, the postal service nationwide.

It is not only to express concerns about Italy. Standard and poor's recently cut its rating Outlook for Italy's debt from stable to negative.

Italy's financial system has come to further examination on fears of contagion from the Greek crisis.

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Greek banks discuss new rollover plan (Reuters)

Frankfurt/London (Reuters)-European banks and finance officials are discussing a proposal to replace the existing Greek debt with a different type of link to circumvent provisions of credit rating agencies on a scheduled rollover, two senior European banking sources said on Friday.

The proposal provides for a voluntary rollover of debt securities of a composition of different credit and not comparable to avoid moving agencies in Greece default status, sources told Reuters on Friday.

"Only by a completely different composition would bond rating agencies see restructuring as a volunteer and not declare insolvent, Greece," said a senior banker.

Banks, insurers and national finance officials have held meetings this week to seek a solution to the crisis of sovereign debt of Greece.

An elderly German banking source said that banks were still examining a variety of proposals and that they wouldn't agree to commit to any rollover agreement without a signal from rating agencies that there would be no default value.

French President Nicolas Sarkozy said on Friday that French banks and insurance companies were willing to participate in a voluntary rollover of Greek debt.

German private creditors were invited by the Ministry of Finance of the country to submit data on their exposure and their intentions to roll the debt early next week, two other sources familiar with the meetings said.

Euro-zone Governments are discussing a second rescue package for Greece that would run from 2011 to 2014 and would amount to 120 million euros (170 million dollars), including up to 30 billion euro by the private sector.

Germany and France, along with Greek banks themselves, are the largest holders of Greek State debt and therefore more exposed to any default.

There was increasing pressure in countries like Germany, Finland and Netherlands for aggressive steps to force banks to share the burden of a new aid package, after taxpayers coughed all the money in the previous round.

(Reporting by Alex Chambers, Jonathan Gould and Philipp Halstrick; editing by Patrick Graham)

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