Moody's is downgrading the credit ratings of 10 small- to mid-sized banks, citing growing financial risks and strains that could erode their profitability. The credit ratings agency also warned it is watching some of the nation's biggest lenders for potential downgrades.
The actions come after a banking crisis that started in March with the sudden collapse of Silicon Valley Bank, once the nation's 16th largest bank, when depositors grew fearful of the bank's solvency and made a classic bank run. Signature Bank and First Republic Bank soon followed, leading to more concerns about the banking industry's stability.
U.S. markets fell on Tuesday as Wall Street digested the downgrades as well as the negative outlooks for some of the biggest U.S. banks, with the S&P 500 shedding 0.7% in early afternoon trading.
M&T Bank, one of the banks whose credit rating was cut, fell 2%. Truist Financial, one of the banks that Moody's said it's reviewing for a possible downgrade, fell 2.1%.
In its report, Moody's highlighted that some of the issues that caused the banking crisis earlier this year haven't disappeared; banks are still at risk for depositors to withdraw their funds, while the current higher-interest rate environment is knocking down the value of investments lenders made when rates were super low.
The rating agency added that asset risks are also rising for small- and mid-sized banks, especially those with large corporate real estate (CRE) holdings.
"Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit," it noted.
Smaller banks are especially at risk, given that they have "sizable unrealized economic losses" that could cause investors to lose confidence, it stated in the Monday report.
Moody's cut ratings of 10 banks on Monday. The largest lender to receive a lower rating is M&T Bank, the 19th largest U.S. bank by assets, according to the Federal Reserve.
Here's the list of banks downgraded:
Moody's also said it placed six banks under review for possible downgrades, with some of those banks among the nation's largest. They are:
The credit rating agency also said it shifted the outlook of 11 banks from stable to negative. They are:
With reporting by the Associated Press
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