Moody’s report highlighted that keeping low-interest rates over a long period, coupled with fiscal and monetary aid from the pandemic, has complicated bank operations.
This situation was aggravated due to the panic withdrawal of deposits at SVB, Silvergate Bank, and Signature Bank (SNY) and the subsequent collapse of SVB and SNY.
This series of major bank failures led regulators to intervene with a striking plan for rescuing affected depositors and other entities.
The Federal Reserve created a facility to make sure banks confronted with liquidity issues had access to money. The Treasury reinforced the effort with $25 billion in funds, pledging that depositors with more than $250,000 at SVB and Signature would be able to access their entire balance.
Moody’s expressed their worries, pointing out that there are still issues to be addressed.
In the report, they stated that banks with sizeable losses on investments and with non-retail or uninsured U.S. depositors might still be vulnerable to customer competition or an outflow of funds, which may have negative outcomes regarding their ability to finance themselves, hold onto cash, generate income, and maintain capital levels.
The firm also predicted the U.S. economy would experience a recession later this year, further exerting downward pressure on the industry.
As one of the big-three rating agencies, Moody has decided to react by downgrading the rating for the U.S. banking system from stable to negative. It also removed all of Signature Bank’s associated ratings and placed First Republic, INTRUST Financial, UMB, Zions Bancorp, Western Alliance and Comerica under review.
This move is important as it has the potential to influence credit ratings and, consequently, borrowing costs for the entire banking sector.