SVB Fallout: Moody’s Cuts US Banking System to Negative, Downgrades Signature Bank To Junk
Moody’s placed six US banks on review for potential downgrades including First Republic Bank, Western Alliance Bancorp, Intrust Financial Corp., UMB Financial Corp., Zions Bancorp and Comerica Inc.
Moody’s Investors Service downgraded its outlook for the US banking system to negative from stable after three lenders including Silvergate Capital Corp, SVB Financial Group’s Silicon Valley Bank and Signature Bank collapsed in less than a week. The credit ratings firm also downgraded Signature Bank deep into junk territory following that bank’s failure.
The downgrade in the outlook for the nation’s banking system came as Moody’s placed six other US banks on review for potential downgrades including First Republic Bank, Western Alliance Bancorp, Intrust Financial Corp., UMB Financial Corp., Zions Bancorp and Comerica Inc. The agency has raised concerns over unrealized losses in the lenders’ asset portfolios and risks to profitability.
The credit ratings firm also downgraded Signature Bank deep into junk territory following that bank’s failure.
ALSO READ: SVB Crisis: Check The List Of Companies Impacted By US Bank Collapse
In its report, the credit-rating company said, federal regulators “announced that all depositors of SVB and Signature Bank will be made whole, the rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in US banks’ asset-liability management exacerbated by rapidly rising interest rates.”
The Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp initiated measures following the collapse of SVB to shore up confidence in the financial system.
The announcements come along with the surprise closure of New York’s Signature Bank by state banking regulators along with mounting concerns about spillover effects to other regional lenders and the wider economy.
Also, note that the Moody’s downgrade came ahead of SVB’s collapse. On March 8, the agency downgraded the ratings of SVB and its bank subsidiary, with Silicon Valley Bank’s long-term local currency bank deposit rating downgraded to A1 from Aa3, and its issuer rating cut to Baa1 from A3. The outlook for both ratings was lowered to negative from stable.
The downgrade came after SVB announced it was raising about $2.25 billion to shore up funds as technology startups over liquidity crunch. Within two days, SVB’s Silicon Valley Bank was taken over by regulators, becoming the biggest US lender to fail in more than a decade.
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