After the recent downgrade of the United States as a system country, it is important to look into the details. The American banking sector that has caused a lot of concern in recent years became the focus of attention of the Moody’s international agency. As a result, Moody’s Investors Service has downgraded the credit ratings of 10 small and medium-sized US banks and noted that it may subsequently “revise downward” the ratings of some major lenders, including Bancorp USA, Bank of New York Mellon, State Street, Trust Financial.
Following Fitch’s recent negative verdict that stripped the USA of the prestigious triple-A rating and gave the world’s largest economy an “AA+” rating with a “stable” outlook, the downgrade by Moody’s can be interpreted as evidence of serious problems that the country’s banking sector continues to suffer from.
In fact, in a note accompanying the statement, Moody’s analysts stressed that the decision primarily reflects “various sources of tension” in the US banking sector. In particular, this is the pressure on financing, problems with weak capital, and the risks associated with commercial real estate. “Collectively, these three developments have lowered the credit profile of a number of US banks,” notes the rating agency that, along with Fitch and Standard & Poor’s, is one of the three most prestigious and reliable rating agencies in the world.
Moody’s downgrade comes just months after a worrying US banking crisis when three major lenders – Silicon Valley Bank, Signature Bank, and First Republic – collapsed like houses of cards in less than 90 days, causing shock waves not only in the USA, but throughout the world.
Moody’s has hinted that the American banking sector will remain under the scrutiny of the agency’s analysts for a long time to come. In this regard, some large banks were put on “review for the purpose of downgrading.”
Among other challenges that US lenders are facing, Moody’s cited “volatility” in deposit collections, “substantial increases in funding costs,” and “increasing pressure on profitability related to large and rapid monetary tightening and treasury curve inversion.” All of these factors threaten “declining profitability and indicate lower internal capacity to generate capital.”
As predicted by Fitch, Moody’s also said it expects a recession in the US economy between late 2023 and early 2024. Moody’s believes that “the level and quality of bank capital will be key to the ability of credit institutions to cope with a tangle of problems.”
Downgraded banks
M&T Bank, Webster Financial, Old National, BOK Financial, Pinnacle Financial, Associated Bank, Prosperity Bank, Commerce Bank, Fulton Financial, Amarillo National
Banks with forecasts revised downward
Cadence Bank, Bank OZK, PNC, Capital One, Citizens Financial, Fifth Third Bancorp, Ally Financial, Huntington Bancshares, Regions Financial, F.N.B. Corp., Simmons First National
Banks in “downgrade review”
Bancorp США, Trust Financial, Bank of New York Mellon, State Street Corp., Northern Trust, Cullen/Frost Bankers Inc.