Moody’s cut the outlook for the US banking system from “stable” to “negative” due to the “rapid deterioration of the operating environment”.
In a major blow to the already ailing US banking sector, the rating agency Moody’s downgraded its outlook for the entire banking system from stable to negative.
The firm, among the world‘s three largest rating agencies, said it was moving in light of major bank failures that prompted regulators to step in on Sunday with a dramatic bailout for depositors and other stricken institutions. from the crisis.
“We changed our outlook on the US banking system from stable to negative to reflect the rapidly deteriorating operating environment following the runs of deposits at Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank (SNY) and the bankruptcies of SVB and SNY ”, reads the Moody’s report.
The rating agency’s announcement is important because it could have an impact on credit ratings and therefore on borrowing costs for the industry.
In downgrading the entire industry, Moody’s acknowledged the extraordinary actions taken by relevant authorities to support the industry. But he said other banks with unrealized losses or uninsured depositors could still be at risk.
In an extraordinary move, the Federal Reserve on Sunday set up a structure to ensure that institutions hit by liquidity problems have easy access to liquidity. While the Treasury backed the program with $25 billion in funds and promised that depositors with more than $250,000 at SVB and Signature would have full access to their funds.
But despite extraordinary measures by the FED in cooperation with the US Treasury and the FDIC, “concerns remain.”
“Banks with substantial unrealized losses in securities and with non-retail, uninsured US depositors may be even more susceptible to depositor competition or outright flight with adverse effects on funding, liquidity, earnings and capital,” states the report.