U.S. Banking System Downgraded to Negative by Moody’s (Rating Agency)

NBC News reports: Moody’s cuts outlook on U.S. banking system to negative, citing ‘rapidly deteriorating operating environment’ In a harsh blow to an already-reeling sector, Moody’s Investors Service on Monday cut its view on the entire banking system to negative from stable. The firm, part of the big-three rating services, said 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 moves are important because they could impact credit ratings and thus borrowing costs for the sector. […] SVB, for instance, found itself with some $16 billion in unrealized losses from long-dated Treasurys it held. As yields rose, it eroded the principle value of those bonds and created liquidity issues for the bank, long a favorite of high-flying tech investors that couldn’t get financing at traditional institutions. SVB had to sell those bonds at a loss to meet obligations. CNN: The credit ratings firm said it expects more banks will come under pressure after SVB’s failure — particularly those with large hoards of uninsured deposits and long-term Treasury bonds that have crumbled in value. Moody’s said it expects pressure on the banking sector to persist as the Fed continues to hike interest rates to combat inflation. SVB was brought down by a bank run, but its exposure to long-term Treasuries that tumbled in value during the Fed’s historic rate-hike campaign aggravated its liquidity problem. Moody’s predicts the newly “stressed operating environment” for banks could lead some to lend less, buy back fewer shares or cut dividends to preserve capital in case of emergency. The Epoch Times: “Pandemic-related fiscal stimulus, along with more than a decade of ultra-low interest rates and quantitative easing, resulted in significant excess deposit creation in the U.S. banking sector,” the Moody’s note continues to say. “This has given rise to asset-liability management challenges, with some banks having invested excess deposits in longer-dated fixed-income securities that have lost value during the rapid rise in U.S. interest rates.” – Breitbart: Moody’s also warned it was reviewing the rates of First Republic Bank, Zions, Western Alliance, Comerica, UMB Financial, and Intrust Financial. It said it had cut the rating on Signature Bank, which was seized by bank regulators over the weekend, to junk. […] The company expects the economy to fall into a recession later this year. Read Moody’s report: – Moodys.com – Moody’s Report on First Republic Bank