Moody's downgrades US regional banks and will review six giants (2024)

FAQs

What 6 banks did Moody's downgrade? ›

Those placed on review for downgrade are giants: BNY Mellon, Northern Trust, State Street, Cullen/Frost Bankers, Truist Financial and US Bancorp. It has been five months since the collapse of Silicon Valley Bank, the Bay area bank well-known for its services tailored to the venture capital industry.

Moody's stated two primary reasons for downgrading the outlook: Debt affordability — rising interest rates have caused the cost of financing the debt to rapidly increase.

S&P Downgrades Outlook On 5 Regional Banks, Citing CRE Exposure. S&P Global downgraded five regional banks Tuesday to a “negative” outlook from “stable” because of their exposure to CRE loans. The banks include First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark and Valley National Bancorp.

Impact on Borrowing Costs: Typically, a downgrade translates in higher borrowing costs for the impacted banks. Because credit ratings affect loan interest rates, a lower rating indicates that banks may need to provide higher interest rates to attract investors, thereby affecting their profitability.

Ratings agency S&P Global on Tuesday downgraded its outlooks for five regional U.S. banks to due to their commercial real estate (CRE) exposures, in a move likely to reignite investor concerns about the health of the sector.

Economies with the highest credit rating at S&P Global Ratings, Fitch and Moody's Investors Service include Germany, Denmark, Netherlands, Sweden, Norway, Switzerland, Luxembourg, Singapore and Australia. Canada is rated AAA by two of the ratings companies.

What did Moody's do wrong, if anything? Moody's had downgraded its rating on numerous mortgage-backed bonds causing them to underestimate essential risks in these securities.

Moody's was acquired by Dun & Bradstreet in 1962. In 2000, Dun & Bradstreet spun off Moody's Corporation as a separate company that was listed on the NYSE under MCO.

Republic First Bank reported unrealized securities losses in excess of its equity as early as June 2022. State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year.

First Republic Bank failed on April 28, 2023. Signature Bank failed on March 12, 2023. Silicon Valley Bank failed on March 10, 2023. Almena State Bank failed on October 23, 2020.

Are regional banks in trouble again? ›

Regional banks are having a tough year so far. The SPDR S&P Regional Bank ETF (KRE) is down almost 13%, and only four of its members are positive for 2024. The biggest laggard in the KRE is New York Community Bancorp which has tumbled more than 71% this year.

When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out. Funds beyond the protected amount may still be reimbursed, but the FDIC does not guarantee this.

Three US banking giants have just had their ratings downgraded to “negative” by Moody's. Moody's Investor Service downgraded JPMorgan Chase, Wells Fargo and Bank of America to negative ratings after previously classifying them as stable, MarketWatch reports.

Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crashed. In all, 9,000 banks failed--taking with them $7 billion in depositors' assets.

The last Federal Deposit Insurance Corp. (FDIC) bank to fail was Citizens Bank of Sac City, Iowa. That was the fifth FDIC bank failure of 2023, a year with some of the largest bank failures in U.S. history.

This took a sharp turn after the U.S. declared a recession in December 2007. From 2008 to 2012, bank failures shot up to an average of 93 per year. Of the 569 bank failures from 2000 to 2024, 465—or 82%—occurred from 2008 to 2012.