Summary:
Moody’s cut ratings on 10 small- to mid-sized lenders by one notch and placed six banking giants on review for potential downgrades on Tuesday.The rating agency warned that the sector’s credit strength would likely be tested by funding risks and weaker profitability.
Moody’s cut ratings on 10 small- to mid-sized lenders by one notch and placed six banking giants on review for potential downgrades on Tuesday.
The rating agency warned that the sector’s credit strength would likely be tested by funding risks and weaker profitability. It came as three U.S. regional banks collapsed earlier this year.
Reaction to the bank downgrades pushed up the CBOE Market Volatility index Wall Street's fear gauge, at one point hitting a two-month high. The banks index slid 1.1%, dragging all three major Wall Street benchmarks lower.
Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.
‘Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,’ the analysts added.
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