S&P Global has downgraded its ratings on several U.S. banks, citing concerns over rising interest rates and significant deposit outflows. This unsettling news comes after the recent collapses of Silicon Valley Bank and Signature Bank earlier this year.
Late on Monday, S&P Global announced downgrades for Comerica (ticker: CMA), Associated Banc-Corp (ASB), KeyCorp (KEY), Valley National Bancorp (VLY), and UMB Financial (UMBF). The ratings agency predicts continued pressure on banks as long as the Federal Reserve maintains its aggressive approach to raising interest rates.
Since March 2022, the central bank has increased its target for the fed-funds rate by 5.25 percentage points. Consequently, rates on investments such as money-market funds have risen, attracting savers away from bank deposits. This shift of funds reduces one of the primary sources of cash that banks rely on to finance their loans. Moreover, higher interest rates mean that banks must pay more to borrow money.
Although these rating downgrades were significant, they had minimal immediate impact on the respective bank stocks during premarket trading on Tuesday. Comerica declined by 0.3%, Associated Banc-Corp dropped by 0.6%, KeyCorp fell by 0.9%, Valley National gained 0.1%, and UMB Financial remained unchanged.
S&P Global’s downgrade is not the only instance of credit-rating agencies downgrading U.S. banks this year. Earlier this month, Moody’s Investors Service downgraded the ratings of 10 lenders due to concerns about a potential recession, funding costs, reduced regulatory capital for regional banks, and the risk of defaults in commercial real estate.
Additionally, in June, Fitch Ratings lowered its operating environment score for U.S. banks by one notch. The reduced score reflects an increasing level of uncertainty in the macroeconomic environment and the possibility of ongoing structural challenges for the U.S. banking system if interest rates remain elevated for a prolonged period.
