Moody's Downgrades Credit Ratings of Regional Banks, Predicts Recession in 2024

Moody's Downgrades Credit Ratings of Regional and Larger American Banks

Moody's, a credit rating agency, has downgraded the credit ratings of ten regional American banks and has also threatened to downgrade several larger banks. The ten banks affected by the downgrade include Amarillo National Bancorp, BOK Financial, Commerce Bancshares, Fulton Financial, M&T Bank, Old National Bancorp, Pinnacle Financial Partners, Prosperity Bancshares, and Webster Financial. This news has caused the shares of major banks such as JPMorgan, Bank of America, Citigroup, and Wells Fargo to plummet.

Moody's Investors Service is reviewing the ratings of six institutions, including Bank of New York Mellon, Northern Trust, State Street, and US Bancorp. They have also assigned a negative outlook to 11 other banks. This news has caused the Dow Jones Industrial average to drop by 3.75%.

Moody's has warned that many banks are facing increasing profitability pressures, which will limit their ability to generate internal capital. This comes as the US economy is expected to experience a mild recession in early 2024. Moody's also highlighted concerns about declining asset quality, particularly in some banks' commercial real estate portfolios.

According to Moody's analysts, U.S. banks experienced higher funding costs and profitability pressures in the second quarter due to the tightening of monetary policy and an inverted yield curve. These factors are expected to continue to lower profitability and make it more difficult for banks to generate capital internally.

According to Ana Arsov, managing director of financial institutions at Moody's, there are some challenges facing the banking system, but it is not broken. The main concern is the profitability of banks, rather than their capitalization or funding.

According to Investopedia, the net interest margins of banks have been impacted due to the release of non-interest bearing deposits caused by the 2023 financial situation. This has resulted in a difference between the interest earned on loans and the interest earned by depositors. Additionally, many banks are facing challenges due to high loan-to-deposit ratios, which could potentially lead to insufficient liquidity and vulnerability.