S&P goes on a banking downgrade spree in US

On Monday, S&P Global took a significant step by revising credit ratings and adjusting the outlook for several U.S. banks. This action mirrors a similar move undertaken by Moody’s, and it serves as a cautionary indication that the credit strength of the sector could face challenges due to funding risks and reduced profitability.

S&P’s downgrades included Associated Banc-Corp and Valley National Bancorp, both of which experienced lowered ratings due to concerns about funding risks and a heightened reliance on brokered deposits.

Further downgrades affected UMB Financial Corp, Comerica Bank, and Keycorp. These adjustments were attributed to substantial deposit outflows and the prevailing environment of elevated interest rates.

S&P highlighted in a concise note that the notable increase in interest rates has imposed a burden on the funding and liquidity of numerous U.S. banks. The agency also noted that deposits held by banks insured by the Federal Deposit Insurance Corporation (FDIC) are expected to continue declining as long as the Federal Reserve pursues its policy of quantitative tightening.

In addition to these changes, S&P shifted the outlook of S&T Bank and River City Bank from stable to negative. This adjustment was influenced by factors including their significant exposure to commercial real estate.

In a parallel development, earlier this month, Moody’s downgraded the ratings of 10 banks by one notch. Moreover, six major banking entities, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, were placed under review for possible downgrades.

The banking sector faced a crisis of confidence following the collapse of Silicon Valley Bank and Signature Bank earlier this year. This event triggered a wave of deposit withdrawals from numerous regional banks, despite the implementation of emergency measures by authorities to bolster confidence in the system.

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