Moody's on Tuesday downgraded the ratings of conglomerate General Electric Co and its finance unit General Electric Capital Corp. each by a notch to reflect risks in GE Capital's funding model, and said risks still remain.

Moody's said there are still remaining material risks associated GE Capital's funding model, even though the firm had improved its liquidity and capital levels since the credit crisis.

It said the risk profiles of market-funded financial institutions like GE Capital are higher than was previously reflected in its ratings.

The ratings agency said it had downgraded General Electric Co's debt to Aa3 from Aa2 and downgraded GE Capital to an A1 rating from Aa2.

Regarding General Electric itself, Moody's Senior Vice President Russell Solomon said in a statement that its downgrade was due to the risks at GE Capital and the unit's strategic importance to its parent company rather than any deemed incremental risk related to GE's industrial business lines.

GE spokesman Andrew Williams said the downgrade was based on a change in Moody's methodology rather than GE's credit position, which has never been stronger.

With over $80 billion in cash and a healthy balance sheet, GE is well positioned and GE Capital remains one of the highest rated financial services companies in the world, he said.

With a senior debt rating of A1, GE Capital is now rated one-notch lower than GE but three notches higher than its Baa1 standalone profile, according to Moody's.

This reflects Moody's view that support from the parent company is highly likely but not certain in the absence of a guarantee, according to the agency. To lift GECC's rating to its parent's level would require a higher degree of support certainty, Moody's said.

The ratings agency affirmed the Prime-1, investment grade, ratings of both companies and said the rating outlook for both was now stable. The move concludes a review begun on March 19.

The downgrades result from the implementation of Moody's revised global rating methodology for finance companies, and reflect in particular the impact of GE Capital's higher risk profile on GE, the agency said.

(Reporting by Wayne Cole and Sinead Carew; Editing by Jeremy Laurence and Richard Pullin)