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Moody’s Investors Service Downgrades U.S. Banking System Outlook to Negative
Moody’s Investors Service downgraded the U.S. banking system’s outlook from stable to negative and put six U.S. institutions under consideration for possible credit rating reductions.
“We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s report published on Monday said.
The rating agency issued a warning that bank runs at American banks with sizable unrealized losses were still a possibility.
“Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings, and capital,” the report went on to say.
According to Moody’s, even banks that do not experience runs are expected to experience higher funding costs, which would reduce profitability.
“We expect pressures to persist and be exacerbated by ongoing monetary policy tightening, with interest rates likely to remain higher for longer until inflation returns to within the Fed’s target range,” the Moody’s report added. “US banks also now are facing sharply rising deposit costs after years of low funding costs, which will reduce earnings at banks, particularly those with a greater proportion of fixed-rate assets.”
MFirst Republic Bank, Zions, Western Alliance, Comerica, UMB Financial, and Intrust Financial’s rates were all under review, according to Moody’s. It declared that it has downgraded Signature Bank, which was seized over the weekend by bank regulators, to junk status.
Notwithstanding the sector’s reduction, Moody’s stated that the U.S. banking system is well-capitalized, has ample liquidity, and is normally able to weather a downturn in the economy. Later this year, according to the corporation, the economy will enter a recession.
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