More U.S. banks have been hit with credit rating downgrades, the latest development threatening to make borrowing more difficult for businesses and individuals.
Key Takeaways
- S&P has downgraded five U.S. banks and put two others on notice because of a "tough" high interest rate business environment.
- The decision, on top of recent downgrades by other credit rating companies, will likely make it harder and more expensive for borrowers to get loans.
- The banking industry is grappling with fallout from the failure of Silicon Valley Bank and two other banks this spring, as well as the Federal Reserve's campaign of anti-inflation rate hikes.
S&P became the latest credit rating company to lower its assessment of some U.S. banks on Monday when it lowered its ratings of five banks and put two others on notice for potential downgrades in the future. KeyCorp, the 20th-largest U.S. bank according to the Federal Reserve, was the biggest bank downgraded.
The downgrade poses another obstacle for people and businesses who are already facing the highest interest rates in decades for various kinds of loans because of the Federal Reserve’s campaign of anti-inflation rate hikes. Banks have also raised their standards for lending, making borrowers meet stricter conditions. Credit downgrades likely will mean higher borrowing costs, and even tougher lending standards, said Eugenio Aleman, chief economist at Raymond James.
“It is going to become more difficult for these banks to lend because funding normally dries up and becomes even more expensive,” he said. “It's going to become more expensive for customers to get loans.”
S&P’s downgrade comes on the heels of actions by the two other major credit rating companies, Fitch and Moody's. Last week, Fitch said it was downgrading the credit rating of the entire U.S. banking sector, a move that could affect ratings for individual banks, including some of the largest ones. Earlier this month, Moody’s downgraded 10 banks and put six others on notice.
Banks are facing a “tough” environment in the wake of the Fed raising its benchmark interest rate to its highest since 2001, S&P said in a research note explaining the downgrade. Rate hikes have lowered the value of assets that regional banks hold, and have forced banks to pay higher interest rates to depositors.
Bank customers have moved assets out of non-interest bearing accounts, which have declined 23%, over the last five quarters, S&P said, while certificates of deposit and brokered deposits have doubled, increasing funding costs.
Other challenges for the banking sector include the possibility that the U.S. could enter a long-predicted recession, or that banks could lose a lot of money on commercial real estate loans amid a decline in the value of office space because of work-from-home trends, S&P economists said in the note.
S&P downgraded The Associated Banc Corp; Comerica Inc; KeyCorp; UMB Financial Corp; and Valley National Bancorp and put River City Bank and S&T Bank on notice.
In general, institutions with lower credit ratings must pay higher borrowing costs because investors view them as riskier bets. However, Aleman said, the impact of the latest downgrade will be limited because it mainly reflects what markets already knew.
“These agencies, as is always the case, are laggards in making these assessments,” Aleman said.
The banking sector has come under pressure, and has pulled back on lending, after a string of three bank failures this spring that started in March when panicked depositors at Silicon Valley Bank withdrew their money at a rate of a million dollars per second.
Reduced availability of credit hurts the ability of consumers to spend, and of businesses to hire and expand, putting a further drag on an economy already grinding under the weight of the Federal Reserve’s interest rate hikes.
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FAQs
Key Takeaways. S&P has downgraded five U.S. banks and put two others on notice because of a "tough" high interest rate business environment. The decision, on top of recent downgrades by other credit rating companies, will likely make it harder and more expensive for borrowers to get loans.
What happens if banks are downgraded? ›
Impact on Borrowing Costs: Typically, a downgrade translates in higher borrowing costs for the impacted banks. Because credit ratings affect loan interest rates, a lower rating indicates that banks may need to provide higher interest rates to attract investors, thereby affecting their profitability.
What 5 banks did S&P downgrade? ›
S&P Global downgraded five regional banks Tuesday to a “negative” outlook from “stable” because of their exposure to CRE loans. The banks include First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark and Valley National Bancorp.
Did S&P join moody's in cutting U.S. banks amid tough environment? ›
Two weeks after Moody's Investors Service rattled financial stocks by cutting the ratings for a slew of US banks, S&P Global Ratings is downgrading and dimming its outlook for several more — citing a similar mix of pressures making life “tough” for lenders.
Why was Keybank downgraded? ›
The credit ratings downgrade reflects KeyCorp's sustained weakening of its operating earnings performance, driven by its balance sheet positioning and hedging strategies during the most recent interest rate hike cycle.
What does it mean when S&P downgrades a bank? ›
Credit downgrades likely will mean higher borrowing costs, and even tougher lending standards, said Eugenio Aleman, chief economist at Raymond James. “It is going to become more difficult for these banks to lend because funding normally dries up and becomes even more expensive,” he said.
Which U.S. banks have been downgraded? ›
It downgraded First Commonwealth Financial, M&T Bank , Synovus Financial, Trustmark and Valley National Bancorp.
Which banks are in trouble in the US? ›
List of Recent Failed Banks
| Bank Name | City | State |
|---|
| Heartland Tri-State Bank | Elkhart | KS |
| First Republic Bank | San Francisco | CA |
| Signature Bank | New York | NY |
| Silicon Valley Bank | Santa Clara | CA |
2 more rowsJun 6, 2024
A brighter 2024 outlook for U.S. regional banks as rates and deposit costs change course. With interest rates appearing to have peaked and lenders' deposit costs easing, 2024 could turn out to be a far more hospitable year for U.S. regional banks than 2023.
What is Charles Schwab's credit rating S&P? ›
Senior Unsecured Debt Rated 'A-' TORONTO (S&P Global Ratings) Nov. 15, 2023--S&P Global Ratings today assigned its 'A-' issue rating to Charles Schwab Corp.'s $1.3 billion senior unsecured debt issuance.
Warren Buffett looks for top companies that participate in leading the U.S. economy, boring or not, and his holding company, Berkshire Hathaway, owns 13.5% of Moody's stock and is its largest investor. It makes up about 2.5% of the Berkshire Hathaway equity portfolio.
Did Capital One get downgraded? ›
Moody's also changed its outlook to negative for 11 banks, including Capital One , Citizens Financial and Fifth Third Bancorp . Among the smaller lenders receiving an official ratings downgrade were M&T Bank , Pinnacle Financial , BOK Financial and Webster Financial .
Did PNC Bank get downgraded? ›
Among the banks that were downgraded on Tuesday, shares of M&T Bank fell 1.5% and Webster Financial dipped 0.9%. Shares of PNC Financial and Citizens Financial Group , which were given negative outlooks by Moody's, slid by roughly 1.8% and 1.6%, respectively.
Has Truist bank been downgraded? ›
Moody's reviewed the long-term rating of the bonds following Moody's rating action of Truist Bank (the Bank). On May 8, 2024, Moody's downgraded the long-term Counterparty Risk (CR) Assessment of the Bank to A2(cr) from A1(cr). The Bank's long-term CR Assessment was previously on review for downgrade.
What is the name of the bank that just collapsed? ›
About the FDIC:
| Bank NameBank | CityCity | Closing DateClosing |
|---|
| Silicon Valley Bank | Santa Clara | March 10, 2023 |
| Almena State Bank | Almena | October 23, 2020 |
| First City Bank of Florida | Fort Walton Beach | October 16, 2020 |
| The First State Bank | Barboursville | April 3, 2020 |
55 more rowsApr 26, 2024
It is unlikely to undergo any financial distress in the next 24 months. Probability of bankruptcy shows the probability of financial torment over the next two years of operations under current economic and market conditions.
What happens to my money if the banks collapse? ›
For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
Do you get your money back if a bank shuts down? ›
If your bank closes, you should receive notification of what will happen to your money from the FDIC or NCUA, the acquiring bank or both. You'll automatically have an account at the new bank, or the FDIC or NCUA will issue you a payment returning your funds.
What happens if you get downgraded? ›
Key Takeaways. If your seating class has been downgraded, airlines are required to compensate you between 30-75% of your purchased ticket price. The exact amount of compensation you could receive is based on the distance of your flight. You don't have to repay the airline for seating upgrades.
Can banks lose your money during a recession? ›
Money deposited into bank accounts will be safe as long as your financial institution is federally insured. The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions, respectively. These federal agencies also provide deposit insurance.
