Moody’s cuts outlook on U.S. banking system to negative

Moody’s cuts outlook on U.S. banking system to negative, citing ‘rapidly deteriorating operating environment’

https://www.cnbc.com/2023/03/14/moodys-cuts-outlook-on-us-banking-system-to-negative-citing-rapidly-deteriorating-operating-environment.html

“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 that it either was downgraded 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.

In its downgrade of the entire sector, the ratings agencies noted the extraordinary actions taken to shore up the sector. But it said other banks with unrealized losses or uninsured depositors still could be at risk.

Treasury backstopped the program with $25 billion in funds and vowed that depositors with more than $250,000 at SVB and Signature would have full access to their funds.

“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 said. “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.”

The firm said it expects the U.S. economy to fall into recession later this year, further pressuring the industry.

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