Moody’s Investors Service revised its outlook on the whole banking industry from “stable” to “negative” just days after Silicon Valley Bank failed. According to Moody’s, the decision was driven by serious bank failures that forced government officials to step in with a depositor rescue plan.
Moody’s downgraded Signature Bank and announced the removal of all ratings on Monday. “We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a report.
The rating agency also stated that it expects the US Federal Reserve to continue tightening monetary policy, contrary to some analysts who believe the US central bank would suspend interest rate hikes.
Moody’s downgrade to negative is a significant development since it could affect credit ratings and hence borrowing costs for the sector. Meanwhile, according to media sources, US authorities have raced to launch an investigation into the bank’s failure and any suspected misbehavior by SVB management.
According to the Wall Street Journal (WSJ), the Justice Department and the Securities and Exchange Commission (SEC) have launched an investigation into the lender’s demise.
The rating agency acknowledged the unprecedented measures taken to shore up damaged institutions in its downgrading of the overall sector. But, it stated that other institutions with unrealized losses or uninsured depositors could still be at risk.
The Federal Reserve set up a program to ensure that institutions experiencing liquidity issues had access to funds. The Treasury Department provided $25 billion in funding for the initiative and promised that depositors with more than $250,000 at SVB and Signature would have full access to their cash.