Moody’s downgrades US banking sector to negative after collapse of three major banks
Moody’s Investors Service downgraded the rating of the US banking system from “stable” to “negative” following last week’s collapse of three major US banks, two of which were the second and third largest bankruptcies in the country. As one of the “Big Three” rating firms, Moody’s cited a “rapid deterioration in the operating environment” following the collapse of these banks.
Moody’s downgrades US banks as financial institutions face rising deposit costs and lower earnings
Moody’s Investors Service, the American rating agency, has downgraded the US banking sector from “stable” to “negative”. The agency last week cited the collapse of three banks in seven days in the United States. Silvergate Bank opted for voluntary liquidation and Silicon Valley Bank (SVB) experienced a major bank run last Thursday.
After the FDIC placed SVB under receivership, New York regulators announced Sunday that the FDIC had also acquired Signature Bank. SVB’s collapse was the second largest banking collapse since Washington Mutual (Wamu) in 2008, and Signature’s collapse was the third largest after SVB’s.
“We have revised our outlook for the US banking system to negative from stable 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 collapses of SVB and SNY ‘ Moody’s said on Monday.
The credit agency added that although the US government healed depositors, “the rapid and significant decline in bank depositor and investor confidence that prompted this action highlighted the risks in US banks’ asset-liability management (ALM). power, exacerbated by rapidly rising interest rates. ”
MIS analysts stated that while the Federal Reserve’s collateral liquidity facility is beneficial for banks and could help the situation, “banks with significant unrealized securities losses and with non-retail and uninsured US depositors may still be more vulnerable to competition the depositor or ultimate flight, adversely affecting funding, liquidity, earnings and capital.”
MIS refers to the Federal Reserve’s recently created Bank Term Funding Program (BTFP), which was announced after Treasury Secretary Janet Yellen revealed that SVB and Signature would be bailed out.
While Goldman Sachs and other market participants believe that Fed Chair Jerome Powell and the Federal Reserve will not hike rates this month, Moody’s believes the central bank’s monetary tightening process should continue. “Our baseline scenario is continued Fed tightening, which could exacerbate challenges for some banks,” the MIS report stressed.
“We expect pressures to continue and be exacerbated by continued monetary tightening, with interest rates likely to stay elevated longer until the inflation back into the Fed’s target range,” Moody’s said. The credit agency added that US banks are now facing rising deposit costs, which will result in lower earnings.
How do you think Moody’s downgrade of the US banking system will affect the economy? Do share your thoughts in the comment section below.
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