Moody’s Investors Service slashed the credit ratings of 10 small and midsize banks and warned of downgrading big banks as the sector faces uncertainty.
The downgrades and warnings were announced Tuesday and came exactly a week after Fitch announced that America’s"AAA" rating, the top rating, would be downgraded to"AA+" following this year’s debt limit fight. Moody’s said the banks would be tested this year by lower profits and funding risks.“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody's said in a note, adding that a mild U.
In a perhaps even more concerning move, Moody’s warned about credit downgrades down the road for six of the country’s biggest banks, including giants such as Bank of New York Mellon, U.S. Bancorp, State Street, and Truist Financial. It said the warnings reflected “ongoing strain” in the banking sector.
“U.S. banks continue to contend with interest rate and asset-liability management risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s said. There were fears that the collapses would act as a sort of contagion and spread throughout the global banking system. While the worst was avoided in large part due to quick federal intervention, there were some ripples from SVB's failure, such as the emergency acquisition of Credit Suisse by fellow Swiss bank UBS.
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