The credit agency downgraded the outlook on the banking system from “stable” to “negative” to reflect the rapidly deteriorating operating environment after the collapse of three banks.
The big US banks are being inundated with requests from customers trying to transfer funds, since the bankruptcy of Silicon Valley Bank results in what executives say is the biggest deposit movement in more than a decade. In this context, Moody’s worsened the outlook on the banking system, which drops from “stable” to “negative”to reflect the rapid deterioration in the operating environment after the collapse of three entities.
The risk rating agency considers that, although the Department of the Treasury, the Federal Reserve and the FDIC have offered support to the clients of the entities, the rapid and substantial decrease in the confidence of bank depositors and investors that this action precipitated clearly highlights the risks in US banks’ asset and liability management, exacerbated by rapidly rising interest rates.
There are now six US banks under review by Moody’s for potential downgrades.
Moody’s warned that it could also downgrade First Republic Bank, Zions, Western Alliance, Comerica, UMB Financial and Intrust Financial. The firm cited the “Extremely volatile funding conditions for some US banks exposed to risk of uninsured deposit outflows”.
In the case of San Francisco-based First Republic, Moody’s noted the bank’s “heavy reliance on more confidence-sensitive uninsured deposit funding,” high unrealized losses on its bond holdings, and “low capitalization” relative to their peers.
First Republic has a large number of deposits above the FDIC insurance limit, Moody’s said, noting that this makes the bank’s funding profile “more sensitive to large and rapid withdrawals of deposits.”
Source: Ambito
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