Moody’s Investors Service has revised the forecast for the activity of the American banking sector downwards.
The credit rating agency adheres to the position that after the collapse of the Silicon Valley Bank, all financial institutions will likely be under pressure. Experts say that the predicted situation will be particularly sensitive for banks with large reserves of uninsured deposits and long-term treasury bonds, the value of which has fallen significantly.
Moody’s explains the high probability of pressure on financial institutions, which is already evident, by the fact that the Fed continues to implement a policy of raising interest rates as part of a set of measures to combat inflation.
U.S. banks are also raising the interest rates they pay on savings accounts. Experts call this circumstance another factor of pressure on the banking sector. The agency notes that in this way financial institutions are trying to maintain their customer base amid panic over the collapse of the Silicon Valley Bank, but these actions can also provoke a significant decrease in profits.
Moody’s draws attention to the fact that, despite the collapse of several banks, in general, this industry is healthy. Experts note that the American banking sector has enough cash and liquid assets to overcome the economic downturn.
For financial institutions, the current state of affairs is not favorable from the point of view of the near-term prospects. Moody’s believes that after the rapid collapse of the Silicon Valley bank, regulators may approve the requirement to hold more capital as a required condition.
SVB failed as a result of bankruptcy, but its exposure to long-term treasury bonds has exacerbated the liquidity problem. Moody’s predicts that the new tense operating environment for banks may lead to a decrease in lending volumes, a reduction in dividends, and a decrease in stock buying activity.
As we have reported earlier, FDIC Plans to Try Again to Sell Silicon Valley Bank.