Moody’s Traders Service minimize its outlook for the U.S. banking system to damaging from steady and positioned six U.S. banks on evaluation for potential credit standing downgrades.
“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 mentioned in a report launched Monday.
The scores company warned that there was nonetheless a danger of financial institution runs at U.S. banks with substantial unrealized losses.
“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,” Moody’s mentioned.
Even banks that don’t expertise runs are more likely to face rising funding prices, chopping into profitability, Moody’s mentioned.
“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 report mentioned. “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.”
Moody’s additionally warned it was reviewing the charges of First Republic Financial institution, Zions, Western Alliance, Comerica, UMB Monetary, and Intrust Monetary. It mentioned it had minimize the ranking on Signature Financial institution, which was seized by financial institution regulators over the weekend, to junk.
Regardless of the downgrade of the sector, Moody’s mentioned the U.S. banking system is well-capitalized, has amble liquidity, and usually is ready to resist an financial downturn. The corporate expects the economic system to fall right into a recession later this yr.
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