Moody’s Investors Service cut its outlook for the entire US banking sector to negative and put six banks on ‘downgrade’ watch on Tuesday.
The credit rating service’s move to downgrade the entire banking sector from ‘stable’ to ‘negative’ will impact borrowing costs.
“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 said in its report.
Federal Reserve Chairman Jerome Powell raised rates seven times in 2022 for a total of 450 basis points – or 4.5% to hedge inflation.
The sudden and dramatic rate hikes crushed the bankers invested in low-yielding mortgage-backed securities.
Silicon Valley Bank was in FDIC receivership last Friday after investors withdrew more than $40 billion in a run on the bank.
First Republic Bank’s stock tumbled on Friday and by Saturday customers were lining up to withdraw their cash.
I’ve never seen a bank run in Brentwood Los Angeles in over 40 years — this is at first republic bank branch. People standing in rain pic.twitter.com/k31PqqpyO3
— pjb.eth (@Dr_PhillipB) March 11, 2023
Moody’s put First Republic Bank (FRC), Zions (ZION), Western Alliance (WAL), Comerica (CMA), UMB Financial (UMBF) and Intrust Financial on ‘downgrade’ watch.
According to CNBC, the credit rating firm cited “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”
CNBC reported:
In a harsh blow to an already-reeling sector, Moody’s Investors Service cut its view on the entire banking system to negative from stable.
The firm, part of the big three rating services, said Monday it was making the move in light of key bank failures that prompted regulators to step in Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis.
“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 said in a report.
The move followed action late Monday, when Moody’s warned it either was downgrading or placing on review for downgrade seven individual institutions.
The moves are important because they could impact credit ratings and thus borrowing costs for the sector.
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