Posted 11 days ago
Credit ratings agency Moody’s Investors Service downgraded its outlook for the U. S. banking system on Tuesday after the rapid declines and collapses of Silicon Valley Bank, Signature Bank, and Silvergate Bank in recent days.
The prominent ratings agency said it “changed to negative from stable our outlook on the U. S. banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a Monday afternoon report. “Operating conditions have sharply deteriorated,” it also said in a note, according to multiple news outlets.
“Pandemic-related fiscal stimulus, along with more than a decade of ultra-low interest rates and quantitative easing, resulted in significant excess deposit creation in the U. S. banking sector,” the Moody’s note continues to say. “This has given rise to asset-liability management challenges, with some banks having invested excess deposits in longer-dated fixed-income securities that have lost value during the rapid rise in U.S. interest rates.”
Bank runs at Silicon Valley Bank, Silvergate, and Signature led to a crisis of confidence, both from investors and depositors, the ratings agency said. Lenders that had “substantial” unrealized securities losses and uninsured deposits may be hurt more as customers look for safer alternatives to park their funds, it added.
Moody’s wrote it expects more banks will be pressured after SVB’s failure, namely those with large amounts of deposits that aren’t insured by the Federal Deposit Insurance Corporation (FDIC). Reports indicated that upwards of 90 percent of deposits at SVB were uninsured as the bank was heavily used by tech companies and startups.
“Banks with substantial unrealized securities losses and with non-retail and uninsured U. S. depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings, and capital,” Moody’s said, according to reports.... (Read more)