(Bloomberg) -- Moody’s Investors Service cut its outlook for the US banking system to negative from stable, citing the run on deposits at Silvergate Capital (NYSE:SI) Corp., SVB Financial Group’s Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) that led to the three lenders’ collapse in less than a week.
While federal regulators “announced that all depositors of SVB and Signature Bank will be made whole, the rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in US banks’ asset-liability management exacerbated by rapidly rising interest rates,” Moody’s said in a research report late Monday.
The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. took extraordinary measures Sunday to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Fed officials said was big enough to protect the entire nation’s deposits. The announcement came alongside the surprise closure of New York’s Signature Bank by state banking regulators along with mounting concerns about spillover effects to other regional lenders and the wider economy.
“The Fed has announced a new temporary liquidity facility to offer loans to banks against eligible government securities collateral to help meet their funding needs and reduce contagion risks,” Moody’s said. “However, banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital.”
The cut in outlook for the nation’s banking system came as Moody’s placed six US lenders on review for downgrade: First Republic Bank (NYSE:FRC), Western Alliance (NYSE:WAL) Bancorp, Intrust Financial Corp., UMB Financial (NASDAQ:UMBF) Corp., Zions Bancorp and Comerica (NYSE:CMA) Inc. The credit-rating company cited concerns including unrealized losses in the lenders’ asset portfolios and risks to profitability.
A Moody’s downgrade preceded SVB’s collapse. On March 8, the company cut the ratings of SVB and its bank subsidiary, with Silicon Valley Bank’s long-term local currency bank deposit rating downgraded to A1 from Aa3, and its issuer rating cut to Baa1 from A3. The outlook for both ratings was lowered to negative from stable.
The downgrade came after SVB announced it was raising about $2.25 billion to shore up funds as technology startups, fearing a liquidity crunch, yanked their cash. Within two days, SVB’s Silicon Valley Bank was taken over by regulators, becoming the biggest US lender to fail in more than a decade.
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