Hurricanes in sight: S&P downgrades ratings on four US regional banks and crisis returns to investor radar

you US Regional Banks They returned to the eye of the hurricane—if they had left. This Monday (21), the S&P Global Downgraded Assessment Four small North American financial institutions show the country’s banking woes may be far from over.

The ratings agency downgraded KeyCorp, Comerica and three other US banks as part of a broader review of the impact of higher interest rates and deposit movements on lender funding.

All five companies were downgraded, including Valley National Bancorp, UMP Financial and Associated Banc-Corp.

S&P cut the outlook for River City Bank and S&T Bank to negative and said its view on Zions Bancorp remains negative after a review.

High interest and low liquidity

One of the villains for today’s touted downgrade by S&P is the highest US interest rates in years.

According to the agency, many depositors “shifted their funds to accounts with higher interest rates, increasing banks’ funding costs”.

“The decline in deposits has squeezed the liquidity of many banks, while the value of their securities, which make up the bulk of their liquidity, has fallen,” the firm said in a note.

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Moody’s and Fitch focus on banks

Two weeks ago, another ratings agency, Moody’s Investors Service, downgraded the credit ratings of 10 regional U.S. banks and warned it could downgrade others as part of a broader review of mounting pressures on the sector.

More recently, Fitch analyst Chris Wolff said in an interview with CNBC that the agency could downgrade dozens of U.S. banks.

Fitch downgraded its rating on the sector’s health in June, a move that was not widely publicized as it did not lead to a downgrade.

“But a further downgrade in that sector’s rating from AA to A+ would force Fitch to reassess the ratings of the more than 70 U.S. banks it covers,” Wolff said.

According to him, this change “could translate into negative valuation measures”.

Central Bank and Banks

North American regional banks issued the first warning signs in March this year with Silicon Valley Bank (SVB). After him, other small companies in America began to face problems and had to be bailed out.

These events led investors to fear a resurgence of the 2008 financial crisis. However, analysts said, unlike at that time, the Federal Reserve (Fed) was quick and guaranteed liquidity and the stability of the US banking system.

Fed Chairman Jerome Powell, who has been repeatedly questioned about the cases, has assured that the North American banking system is sound and that the Fed is prepared to act if necessary.

Even so, the country’s regulators are rallying to tighten rules for US banks. You can read more about this topic here Your money.

*With information from Bloomberg and CNBC