Moody's Investors Service cut its outlook for the entire US banking sector Tuesday after placing six US banks on review for potential credit rating downgrades, in the wake of last week's collapse of Silicon Valley Bank.
The credit ratings firm said it expects more banks will be will come under pressure after SVB's failure — 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.
Another concern: US banks are raising the interest rates they pay on savings accounts. Although they hope the higher rates will retain customers worried by the collapse of SVB, that could also eat into profits, Moody's warned.
The good news, Moody's said, is that America's banking system is generally healthy. It has enough cash and liquid assets to withstand an economic downturn. The bad news, for banks anyway, is that US regulators may require them to hold more capital after SVB's rapid failure.
SVB was brought down by a bank run, but its exposure to long-term Treasuries that tumbled in value during the Fed's historic rate-hike campaign aggravated its liquidity problem. Moody's predicts the newly "stressed operating environment" for banks could lead some to lend less, buy back fewer shares or cut dividends to preserve capital in case of emergency.