Moody’s Investors Service, a US credit rating agency, has downgraded the credit rating of the US banking system from “stable” to “negative”. The move comes as a result of the rapid deterioration in the operating environment and recent developments in the banking sector.
According to a report by Moody’s, the downgrade reflects the impact of customer withdrawals from Silicon Valley Bank (SVB), Silver Gate Bank, and Signature Bank (SNY), as well as the bankruptcy of SVB and SNY. While the US government has implemented deposit protection measures and established the “Bank Term Funding Program” to prevent the spread of the SVB crisis, Moody’s warns that other banks with unrealized losses or depositors who do not receive a deposit guarantee will continue to face risks.
Moody’s had previously downgraded Signature Bank’s credit rating to “C” (junk) and withdrew its future rating for the bank after the US government ordered the closure of the business over the past weekend.
In addition, Moody’s is considering downgrading the credit rating of six other US banks, including First Republic Bank, Zions Bancorporation, Western Bank, Allianz Bancorp (Western Alliance Bancorp), Comerica Inc. (UMB Financial Corp), and Intrust Financial Corporation (Intrust Financial Corporation).
The downgrade is likely to have significant implications for the broader financial system and the US economy. Analysts warn that it could lead to higher borrowing costs for banks and lower confidence among investors and customers.
As the situation continues to unfold, it remains to be seen how the US government and financial regulators will respond to the challenges facing the banking sector.