The banking turmoil continues to cast a shadow over America’s financial sector, with prominent credit rating agencies raising alarm bells about major banks and their susceptibility to funding risks. In the latest development, Moody’s, a respected credit rating agency, has downgraded multiple banks this week and cautioned about potential downgrades for others.
As of August 8, it has come to light that Moody’s downgraded ten smaller to mid-sized U.S. banks, signaling a deepening banking crisis in the country.
Banks Facing Downgrades: List of Affected Institutions Grows
The banks facing downgrades include Commerce Bancshares, BOK Financial Corporation, M&T Bank Corporation, Old National Bancorp, and Prosperity Bancshares. Amarillo National Bancorp, Webster Financial Corporation, Fulton Financial Corporation, Pinnacle Financial Partners, and Associated Banc-Corp also faced downgrades.
Beyond the ten banks experiencing this decline in their ratings, six major banking entities are under scrutiny for possible future downgrades. This list includes Bank of New York Mellon, US Bancorp, State Street, and Truist Financial. In a noteworthy move, Moody’s also shifted the outlook for eleven banks from stable to negative, reflecting increasing uncertainties in the banking sector.
Moody’s Warning: Profitability Pressure and Recession Concerns Rise for Banks
Moody’s offered its insights, stating that the second-quarter results of many banks indicated mounting pressures on profitability, which could hamper their ability to generate internal capital. The agency raised concerns about a potential mild recession in early 2024 and expressed worries about declining asset quality, particularly in certain banks’ commercial real estate portfolios.
Importantly, Moody’s pointed out that the driving factors behind the earlier banking crisis this year remain prevalent. Banks are still susceptible to sudden withdrawals, and the current elevated interest rates are impacting the investments made by banks during times of lower rates.
These developments have had repercussions on the U.S. stock markets, which experienced a decline on August 8 as investors absorbed the recent developments in the banking sector.
Adding to these concerns, this comes in the wake of another downgrade, with the Fitch rating agency lowering the rating of the U.S. currency. Fitch attributed this downgrade to the anticipated deterioration in fiscal conditions over the next three years and raised concerns about the increasing burden of general government debt.
As the financial landscape faces uncertainty, the Kobeissi Letter, a global capital markets outlet, highlighted an impending debt crisis. The report revealed staggering figures, showcasing a record $17.1 trillion household debt and a historic $12 trillion mortgage. Furthermore, there is an unprecedented $1.6 trillion in auto loans, $1.6 trillion in student loans, and a remarkable $1 trillion in credit card debt.
The Kobeissi Letter summarized the situation: “We are tackling inflation with debt. This path seems fraught with risks.”