Moody’s has slashed the credit rating of ten US banks, including M&T and Webster Financial, here’s what it could mean for you
America’s banking sector is in a state of flux after ten regional firms had their credit ratings slashed by Moody’s.
Five months after the spectacular collapse of Silicon Valley Bank (SVB), the downgradings serve as a reminder that the US economy still has challenges ahead. A further six banks were put on review for a downgrade.
Explaining the decision, Ana Arsov – managing director of financial institutions at Moody’s – said: ‘What we’re doing here is recognizing some headwinds. We’re not saying that the banking system is broken.’
It comes after the US saw its long-term AAA rating cut to AA+ by Fitch Ratings.
But what does it mean for customers? Are you safe to keep your money in a bank that has been downgraded? Here Dailymail.com explains how the latest news affects you.
Moody’s has cut the credit ratings of ten US regional banks, and announced it was reviewing a potential downgrade for six larger ones
‘What we’re doing here is recognizing some headwinds – we’re not saying that the banking system is broken,’ said Ana Arsov, managing director of financial institutions at Moody’s
Which banks has Moody’s downgraded and why?
The ten firms affected are all regional banks. They include: Commerce Business, BOK Financial, M&T Bank, Old National Bancorp, Prosperity Bancshares, Amarillo National Bankcorp, Webster Financial, Fulton Financial, Pinnacle Financial Partners and Associated Bank-Corp.
Such mid-size banks were thrust into the spotlight in March after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector.
In May, First Republic Bank became the second largest bank failure in US history, with assets of $212 million, eclipsing the failure of Silicon Valley Bank and second only to the collapse of Washington Mutual in 2008.
When announcing its downgrade of 10 banks, Moody’s said that the Federal Reserve’s fight against inflation with higher interest rates ‘continues to have a material impact on the US banking system’s funding and its economic capital.’
It warned that higher rates have continued to decrease the value of assets owned by mid-size regional banks, leaving them exposed to drops in share prices if investors get spooked.
Deposits, which have been a pressure point for banks since the SVB collapse, are also expected to decline further as high rates cause customers to look elsewhere for higher-yield options.
What does it mean for customers of the affected regional banks?
A downgrade impacts a bank’s ability to borrow money so it may signal increased risk to customer funds.
Financial services expert Jonathan Merry, from Moneyzine.com, told DailyMail.com: ‘You want to find out as much information as possible to understand why the bank was downgraded and what led to the downgrade. This will give you a better idea of the bank’s stability.’
Christopher Marinac, director of research at Janney Montgomery Scott, said that the news would have little impact on customers.
‘I don’t think there is a risk at all. You cannot expect banks to have zero credit problems and zero losses all of the time.’
He added that customers of the banks affected could trust their money is ‘safe.’
Should I move my money?
If you are a customer with one of the affected firms, experts recommend having an open conversation with your bank directly.
Merry said: ‘Once you know what the situation is, you want to review your accounts and move your money, for example, you may not wish to keep all your savings in a bank undergoing credit difficulties.’
He added that a good rule of thumb for customers is for them to spread their assets to reduce their exposure to risk.
Similarly, Marinac said: ‘What customers should do right now is speak to their banker.
‘In the last few years banks have been getting closer to customers and raising awareness of what’s going on in the economy. They can advise you on how to run your deposits and your credit.’
