Moody’s Investors Service has downgraded the credit ratings of six U.S. banks following the second and third largest bank failures in the nation’s history.
A credit rating agency said Monday that regional banks are “exposed to the risk of uninsured deposit outflows” in the wake of the Silicon Valley bank collapse, which fueled fears that wealthy depositors may shift their money to larger institutions.
Moody’s will review the ratings of San Francisco’s First Republic Bank, Phoenix-based Western Alliance Bancorporation, Dallas-based Comerica Bank, Kansas City’s UMB Financial, Utah’s Zions Bank and Wichita-based Intrust Financial.
The company said First Republic Bank has significant unrealized losses on its investments and undercapitalization relative to its peers. Because the bank has a “material” share of deposits that exceed the Federal Deposit Insurance Corporation’s (FDIC) $250,000 insurance limit, according to Moody’s, it faces a high risk of rapid and large withdrawals.
“If higher-than-expected deposit outflows and liquidity backstops prove insufficient, the bank may have to sell assets, thereby crystallizing its unrealized losses. [securities],” Moody’s analysts wrote.
Shares of regional banks saw heavy selling on Monday before recovering the next day. Shares of First Republic fell 62 percent on Monday, then rose 49 percent on Tuesday.
Federal regulators shut down San Francisco’s Silicon Valley Bank after the bank was driven away from its technology-focused clients, who worried about the bank’s huge losses on long-dated Treasuries hit by the Federal Reserve’s interest rate hikes.
Regulators closed New York’s Signature Bank and guaranteed that depositors at both banks would get their money back by paying the banks fees. The central bank introduced an emergency lending program to ensure that banks had enough money to withdraw.
Moody’s analysts noted that the Fed’s plan would “compensate for these funding risks.”
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