- Banks have reemerged as a potential pain point for the investment community, as rating agencies recently embarked on a downgrade cycle in the sector.
- There’s no single cause for these bank downgrades, which means this probably should not be taken lightly.
- Similarities to the 1980s Savings and Loan Crisis may mean this is more of a multi-year slog than a single event.
- The macro backdrop may lead to less liquidity in the system, which ultimately creates a drag on the economy.
Is the banking crisis back?
Months after the messy regional banking crisis in March 2023 that saw four meaningful bank failures (Silicon Valley Bank, Signature Bank, Credit Suisse, and First Republic), banks have reemerged as a potential pain point for the investment community, as rating agencies recently embarked on a downgrade cycle in the sector.
Moody’s acted first on Aug. 7, with a round of 10 credit-rating downgrades that included Commerce Bank, BOK Financial, M&T Bank, Old National Bank, Prosperity Bank, Amarillo National Bank, Webster Financial, Fulton Financial, Pinnacle Financial and Associated Bank. Additionally, they noted that they are reviewing credit ratings of six additional banking institutions including BNY Mellon, Northern Trust, State Street, Cullen/Frost Bankers, Truist Financial and US Bank.
On Aug. 21, S&P Global downgraded the creditworthiness of its own group of five banks, while putting two others on negative outlook. The agency applied downgrades to The Associated Banc Corp, Comerica Inc., KeyCorp, UMB Financial Corp, and Valley National Bancorp and added River City Bank and S&T Bank to negative-watch.
Reasons for the downgrades?
Interestingly, there is not one overarching cause that applies across the board for these bank downgrades, which underscores the reason this probably should not be taken lightly despite a sense of calm around these issues in the months between March and August. There are a lot of different and interrelated reasons.