S&P Global, a renowned credit rating agency, has recently downgraded the credit ratings of several U.S. banks and revised their outlook. This move follows a similar action taken by Moody’s, another credit rating agency. The reason behind these downgrades is the warning of funding risks and weaker profitability, which are likely to test the credit strength of the banking sector.
Two banks, Associated Banc-Corp and Valley National Bancorp, had their ratings downgraded by S&P due to their funding risks and higher reliance on brokered deposits. Additionally, UMB Financial Corp, Comerica Bank, and Keycorp also faced downgrades from S&P, as these banks experienced significant deposit outflows and were affected by higher interest rates.
S&P highlighted that the sharp rise in interest rates is putting pressure on the funding and liquidity of many U.S. banks. The agency noted that deposits held by banks insured by the Federal Deposit Insurance Corp will continue to decline as long as the Federal Reserve continues its process of “quantitative tightening.”
Furthermore, S&P downgraded the outlook of S&T Bank and River City Bank from stable to negative. This downgrade was based on factors such as their high exposure to commercial real estate.
Earlier this month, Moody’s downgraded the ratings of 10 banks by one notch and put six major banks, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, under review for potential downgrades.
The collapse of Silicon Valley Bank and Signature Bank earlier this year caused a crisis of confidence in the U.S. banking sector. This led to a run on deposits at various regional banks, despite emergency measures being implemented by authorities to restore confidence.
