Moody’s Names Six U.S. Banks as Liable for Downgrade, But Indicates Much Larger Problem

March 14, 2023, 2022 (EIRNS)—Moody’s Investors Service has been working overtime the last 24 hours. Last night, after having downgraded Signature Bank deep into junk territory, it put six U.S. banks on review for similar downgrades. Next in line, according to their watch list, is First Republic Bank, Zions, Western Alliance, Comerica, UMB Financial and Intrust Financial. Moody’s cited the “extremely volatile funding conditions for some U.S. banks exposed to the risk of uninsured deposit outflows.”

Perhaps the most notable of the six, San Francisco-based First Republic, was described by Moody’s as having a “high reliance on more confidence-sensitive uninsured deposit funding,” high unrealized losses in its bond holdings and a “low level of capitalization” relative to its peers. Further, First Republic has a high percentage of its total deposits above the FDIC’s insurance limit; hence, the bank’s funding profile is “more sensitive to rapid and large withdrawals from deposits.”

On March 14, Moody’s also downgraded its outlook for the entire U.S. banking sector, saying that it expects more banks will come under pressure, particularly those with large hoards of uninsured deposits and long-term Treasury bonds that have crumbled in value. Moody’s said it expects pressure on the banking sector to persist as the Fed continues to hike interest rates to combat inflation.