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Credit ratings agency Moody’s Investors Service announced it would downgrade its outlook for the U.S. banking system after the collapse of Silicon Valley Bank and several other lenders over the last week.
Moody’s downgraded its rating of the banking sector from stable to negative after SVB, Signature Bank, and Silvergate Bank collapsed as a result of bank runs, claiming “operating conditions have sharply deteriorated.”
CNN: Moody’s downgrades their outlook of the entire U.S. banking system amid the sky-high inflation under Biden pic.twitter.com/Vk7PqHSg4y
— RNC Research (@RNCResearch) March 14, 2023
The agency noted that the Federal Reserve raising interest rates is challenging the economy bloated by its decade-long policy of zero percent interest rates coupled with excessive money-printing during COVID.
“Pandemic-related fiscal stimulus, along with more than a decade of ultra-low interest rates and quantitative easing, resulted in significant excess deposit creation in the U.S. banking sector,” Moody’s stated Tuesday.
“This has given rise to asset-liability management challenges, with some banks having invested excess deposits in longer-dated fixed-income securities that have lost value during the rapid rise in U.S. interest rates.”
The downgrade comes just two days after the Federal Reserve and Biden government announced that all depositors of SVB would be reimbursed, but apparently that measure wasn’t enough to bolster confidence in the system.
From Business Insider:
The ratings cut comes two days after the Federal Reserve, Treasury, and FDIC announced that all depositors of SVB and Signature Bank would be made whole, and that they would create a new backstop mechanism, The Bank Term Funding Program, to help deposit-taking banks to meet their funding needs and keep customer money secure.
According to Moody’s, the move isn’t enough to prevent the substantial decline in Americans’ confidence in US banks.
Additionally, the situation is made even more volatile due to the Fed raising interest rates to combat inflation.
“The rating agency’s analyst say that the high-interest-rate environment created by the Fed exacerbates challenges facing banks. Funding and liquidity will be harder to come by, and will ultimately leave banks in worse shape compared to the years of easy monetary policy and low rates,” Business Insider reported.
The downgrade represents a significant black eye for the Biden administration given Joe Biden assured the American people in a televised address on Monday that “the banking system is safe.”
“Americans can rest assured that the banking system is safe,” President Biden says following the collapse of Silicon Valley Bank.
“Your deposits will be there when you need them.” pic.twitter.com/9eHYwMOoJt
— CBS News (@CBSNews) March 13, 2023
Meanwhile, the too-big-to-fail banks like Chase and Citigroup are benefiting from the banking chaos as depositors are moving their accounts to them from smaller banks.
Is this the “Build Back Better” Biden was referring to?
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