Moody’s Investor’s Service has responded to a “rapidly deteriorating operating environment” in the US banking system by downgrading the entire sector from stable to negative, despite regulator’s efforts to shore up the industry.
The ratings agency added it was placing six US banks, including First Republic Bank, on review for downgrading. The moves come amid the collapse of three major US financial institutions within a week.
Moody’s wrote, “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.” The ratings agency added that it was expecting the Federal Reserve to continue to pursue its policy of monetary tightening, regardless of the banking crisis.
Zions Bancorporation, Western Alliance Bancorporation, Comerica, UMB Financial Corporation and Intrust Financial Corporation were all placed on review for downgrading. Moody’s cited unrealized asset losses in their portfolios as well as their reliance on uninsured deposit funding.
The agency stated, “The review for downgrade reflects the extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”
New York based Signature Bank also saw its debt ratings slashed by Moody’s into junk territory, as its future ratings were withdrawn, following its collapse Sunday.
Even as regulators have worked to support lenders and prevent more bank runs, the shares of US bank stocks have plummeted. First Republic Bank plunged more than 60% on Monday, triggering a halt in trading due to volatility. Western Alliance Bancorp was down more than 47% while Zions Bancorp fell by roughly 26%. Dallas-based Comerica fell 28% and UMB was down more than 15%.
The chaos was triggered by the collapse of Silicon Valley Bank on Friday, following a run on its deposits by customers. It was the largest collapse of a financial institution since the 2008 banking crisis.
