[Update 1: adds comment from Wells Fargo]

Credit ratings agency Moody's Investors Service (MCO: 37.79 -0.71%) downgraded the long-term and short-term ratings of Bank of America (BAC: 7.2101 -1.23%), Citigroup (C: 30.46 +0.26%) and Wells Fargo (WFC: 29.38 +1.14%) citing waning interest by the government in helping big banks.

"Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions. However, it is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute," Moody's said.

Moody's downgraded Bank of America's long-term senior debt two steps to Baa1 from A2,  and gave the bank a negative outlook.

Moody's said the downgrades "do not reflect a weakening of the intrinsic credit quality of BAC. BAC has made significant progress in improving in its capital and liquidity positions, in shedding legacy and noncore assets, in measuring and monitoring risk, and in managing its risk appetite. These improvements have not, however, resulted in an upgrade of its stand-alone financial strength rating or in an offset to the declining assumption of systemic support in the long-term ratings. This is due in large part to the risks that continue to be presented by the bank's exposures in its mortgage business."

Moody's downgraded the short-term rating of Citigroup, the holding company of Citibank, to Prime-2 from Prime-1. The credit ratings agency said the outlook on the long-term senior ratings remains negative.

Moody's confirmed the A3 long-term rating of Citigroup and the A1 long-term and Prime-1 short-term ratings of Citibank.

On Wells, Moody downgraded Wells Fargo & Co.'s long-term senior debt rating one notch to A2 with a negative outlook. Moody's downgraded the long-term Wells Fargo Bank deposit and senior bank debt ratings to Aa3 from Aa2. The short-term Prime 1 ratings was affirmed.

All three banks had been put on a ratings watch for possible downgrades in June.

Citigroup said it disagrees with the downgrade and said it "does not accurately reflect the significant progress Citi has made since Moody's last rated Citi more than two-and-a-half years ago. Regardless, we believe that less than 1% of Citi's funding will be affected by the Moody's decision and the downgrade will not affect the short-term and long-term funding of our bank vehicles."

Bank of America said the downgrade "is based on factors external to Bank of America … that the Dodd-Frank legislation will make the U.S. government less likely to support financial institutions in a crisis, and a possible further deterioration of the economy. In fact, Moody’s explicitly stated that the downgrades do not reflect a weakening of the intrinsic credit quality of Bank of America."

BofA and Moody's pointed to its significant progress in improving its capital and liquidity positions, shedding legacy and noncore assets, and managing risk.

"With regard to the mortgage business, Moody’s concludes that we have ample resources to absorb the additional losses we are likely to experience on these exposures," the bank said in a statement.

Wells Fargo said Moody's actions were more about public policy and not about credit quality.

"Today’s announcement by Moody’s solely reflects a change in their assumption regarding systemic support in light of the provisions of Dodd-Frank," the bank said in a statement Wednesday.

The action does not affect Wells Fargo's unsupported ratings, which were affirmed today at A2 for Wells Fargo Bank, and A3 for Wells Fargo & Co. that have been increased three times since 2009, most recently on Dec. 6, 2010.

Congressman Barney Frank (D-Mass.), ranking member of the House Financial Services Committee, said he couldn't comment on the absolute value of Moody’s ratings, "but I am pleased that the rating agency recognizes that such large institutions are not 'too big to fail.' "

Write to Kerry Curry.

Follow her on Twitter @communicatorKLC.