Moody’s has decided to downgrade the credit ratings of ten smaller banks, as it recognizes the increasing financial risks and strains that could potentially erode their profitability. The credit ratings agency has also issued a warning that it is closely monitoring some of the largest national lenders for potential downgrades.
These actions come after the banking crisis that began in March with the sudden collapse of Silicon Valley Bank. This incident, which caused depositors to grow concerned about the bank’s solvency, led to a classic bank run. Subsequently, Signature Bank and First Republic Bank experienced similar events, heightening concerns about the stability of the banking industry.
The downgrades and negative outlooks for some of the largest U.S. banks have impacted the U.S. markets, resulting in a 0.7% drop in the S&P 500 during early afternoon trading on Tuesday.
As a result of Moody’s credit rating cuts, M&T Bank saw a 2% decrease in its stock value. Truist Financial, one of the banks under review for potential downgrades, also experienced a 2.1% decrease.
Moody’s report highlights that the issues that triggered the banking crisis earlier this year have not disappeared. Banks remain at risk of depositors withdrawing their funds, while the current high-interest rate environment devalues the investments made by lenders when rates were significantly lower.
The rating agency also emphasizes the rising asset risks faced by small- and mid-sized banks, particularly those with substantial corporate real estate holdings. This is due to sustained high interest rates, a reduction in office demand resulting from remote work, and a decrease in the availability of credit for corporate real estate.
According to Moody’s Monday report, smaller banks are particularly vulnerable as they have significant unrealized economic losses that could trigger a loss of investor confidence.
Moody’s downgraded ratings for ten banks. The largest lender to receive a lower rating is M&T Bank, which ranks as the 19th largest U.S. bank by assets, according to the Federal Reserve.
Here is the list of downgraded banks:
– Commerce Bancshares
– BOK Financial Corporation
– M&T Bank Corporation
– Old National Bancorp
– Prosperity Bancshares
– Amarillo National Bancorp
– Webster Financial Corporation
– Fulton Financial Corporation
– Pinnacle Financial Partners
– Associated Banc-Corp
Additionally, Moody’s has placed six banks under review for possible downgrades, some of which are among the nation’s largest. These banks include Bank of New York Mellon Corporation, Northern Trust Corporation, State Street Corporation, Cullen/Frost Bankers, Truist Financial Corporation, and U.S. Bancorp.
Moody’s has also shifted the outlook of eleven banks from stable to negative. These banks are PNC Financial Services Group, Capital One Financial Corporation, Citizens Financial Group, Fifth Third Bancorp, Huntington Bancshares, Regions Financial Corporation, Cadence Bank, F.N.B. Corporation, Simmons First National Corporation, Ally Financial, and Bank OZK.
It is worth mentioning that these insights were reported by the Associated Press.
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