Moody’s Cuts Outlook On U.S. Banking System To Negative, Citing ‘Rapidly Deteriorating Operating Environment’  

 

• In a harsh blow to an already-reeling sector, Moody’s Investors Service on Monday cut its view on the entire US banking system to negative from stable citing heightened risks for the sector after the rapid unraveling of SVB Financial Group (SIVB.O) fueled fears of contagion.
• Two deposit runs occurring at Silicon Valley Bank and Signature Bank have deteriorated the operating environment for the sector that is now battling a crisis of confidence, both from investors and depositors, the ratings agency said. Regardless of the Federal Reserve stating that they will ensure all depositors will have access to their money as of March 13, it has not mitigated the loss in depositor and investor confidence.
• Pandemic-related fiscal stimulus along with more than a decade of ultralow interest rates and quantitative easing resulted in significant excess deposit creation in the US banking sector. This has given rise to asset-liability management risks, with some banks having invested excess deposits in longer-dated fixed-income securities that have lost value during the rapid rise in US interest rates, resulting in significant unrealized losses.
• Moody's also said it was expecting the Federal Reserve to continue tightening monetary policy, in contrast to some others who are expecting the bank collapses this month to reshape the trajectory for interest rate hikes.

(Sources: Moody’s and Reuters)