Moody's lowers US banking outlook to negative amid sudden collapses

By Ovunc Kutlu

ISTANBUL (AA) - Moody's announced Tuesday it lowered the outlook to negative for the US banking system from stable, amid the sudden collapse of two large banks and the deteriorating environment.

The decision came quickly after the Federal Deposit Insurance Corporation (FDIC) took control of the assets of Silicon Valley Bank (SVB) and Signature Bank in less than one week, and President Joe Biden assured the nation that depositors' money will be protected.

"Although the Department of the Treasury, Federal Reserve and FDIC announced that all depositors of SVB and Signature Bank will be made whole, the rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in US banks' asset-liability management (ALM) exacerbated by rapidly rising interest rates," said Moody's.

The rating agency noted that the Fed announced a new temporary liquidity facility to offer loans to banks against eligible government securities collateral to help meet their funding needs and reduce contagion risks.

The banks with substantial unrealized securities losses, however, will still be more sensitive to depositor competition or ultimate flight, due to adverse effects on funding, liquidity, earnings and capital, it added.

Moody's said the Fed's monetary tightening is expected to continue, which could deepen challenges at some banks.