As recently as seven or eight weeks ago, S&P Global Ratings planned to feature all four of Australia's major banks in its near sector wide reset one notch lower of rated Australian banks. S&P, in "permabear" mode, has followed the lead of the fretful Council of Financial Regulators (APRA, ASIC, RBA and Treasury), a quartet that since March has made much of what APRA's Wayne Byres likes to style "heightened risks".The credit ratings agency's language is more on point, once a reader works past "economic imbalances". The macro risks in Australia "have increased due to strong growth in private sector debt and residential property prices in the past four years, notwithstanding some signs of moderation in growth in recent weeks," S&P says. "Consequently, we believe financial institutions operating in Australia now face an increased risk of a sharp correction in property prices and, if that were to occur, a significant rise in credit losses."Although foreshadowed in late 2016 by S&P, when it placed local banks on a negative outlook, the reset unveiled yesterday morning still caught a share of industry insiders on the hop.One sector CEO to admit to being in this camp was Martin Barrett, managing director at Queensland-based Auswide Bank. His bank's long term rating fell to BBB- from BBB."I didn't expect it, S&P have been making some noises. I suspect most will be surprised," Barrett said.One monitor of the credit ratings scene in Australia, Phil Bayley from the DCM Review, echoed this. "Most will be surprised. I was surprised," he said.Bayley said he surmised that "most thought that S&P would downgrade Australia's sovereign rating from AAA, and then in turn downgrade all the ADIs."S&P in the end listed 23 financial institutions for downgrades that knocked a small number below their previous A-rated perch and stranded three mutual banks one notch away from the uncomfortable level of being BB-rated rather than BBB- (today) or BBB (yesterday).At 23, the list of actions by S&P affecting Australian banks is long but still only the second longest such list, behind the systemic regrading of the entire sector a few years ago.S&P spared a select group of six financial institutions from a ratings cut alongside the majors, including Macquarie Bank, Suncorp-Metway Ltd, Cuscal, QT Mutual Bank and Big Sky Building Society.Two of the three regional banks are back in the realm of BBB level ratings. S&P dropped both Bendigo and Adelaide Bank and Bank of Queensland to BBB+ from A-.AMP Bank is one in the list of 23 to preserve an A level S&P rating, dropped to A from A+.In an unusual move, a 4000 word FAQ report accompanies the credit ratings agency's template media release. In it, S&P considers the answer to "what would cause you to downgrade the four major Australian banks? Do you see any mitigating factors emerging?"In its answer, it says its principal reasons include the expected scope of the Australian Prudential Regulation Authority's plan to "further increase regulatory capital requirements for the four major banks … that