Moody’s Downgrades US Banking Sector to Negative After Collapse of Three Major Banks

After the failure of three main U.S. banks final week, with two of them being the second and third largest banking failures within the nation, Moody’s Investors Service has downgraded the score of the U.S. banking system from “stable” to “negative.” As one of many “Big Three” credit standing corporations, Moody’s cited a “rapid deterioration in the operating environment” following the collapse of those banks.

Moody’s Downgrades U.S. Banks, Financial Institutions Face Rising Deposit Costs and Reduced Earnings

Moody’s Investors Service, the American credit standing company, has downgraded the U.S. banking sector from “stable” to “negative.” The company cited the collapse of three banks inside seven days within the United States final week. Silvergate Bank decided to voluntarily liquidate, and Silicon Valley Bank (SVB) experienced a big financial institution run final Thursday.

After the FDIC positioned SVB into receivership, New York regulators revealed that the FDIC additionally took over Signature Bank on Sunday. SVB’s collapse was the second-largest banking failure since Washington Mutual (Wamu) in 2008, and Signature’s failure was the third-largest following SVB’s.

“We have changed to negative from stable our outlook on the U.S. 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 detailed on Monday.

The credit score company added that although the U.S. authorities made depositors entire, “the rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in U.S. banks’ asset-liability management (ALM) exacerbated by rapidly rising interest rates.”

MIS analysts said that whereas the U.S. Federal Reserve’s backstopping liquidity facility for banks is useful and will assist the scenario, “banks with substantial unrealized securities losses and with non-retail and uninsured U.S. depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings, and capital.”

MIS is referring to the U.S. central financial institution’s lately created Bank Term Funding Program (BTFP), which was introduced after Treasury secretary Janet Yellen revealed that SVB and Signature can be bailed out.

Moreover, whereas Goldman Sachs and different market individuals believe Fed chair Jerome Powell and the Federal Reserve gained’t elevate charges this month, Moody’s thinks the central financial institution’s financial tightening course of ought to proceed. “Our base case is for the Fed’s monetary tightening to continue, which could deepen some banks’ challenges,” the MIS report emphasised.

“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,” Moody’s stated. The credit score company added that U.S. banks now face rising deposit prices, which is able to lead to lowered earnings.

What do you suppose the impression of the downgrading of the U.S. banking system by Moody’s can be on the financial system? Share your ideas within the feedback part beneath.