The international rating agency Moody’s has reviewed the credit ratings of six major US banks, including Bank of New York Mellon, State Street, and Northern Trust, for possible downgrades.

Late in the evening of last Monday, August 7, this agency stated that the risk remains concerning the three mentioned financial institutions, based on the tense state of affairs in the American banking sector. Experts note that there is currently increased pressure on financing and potentially possible shortcomings in the amount of capital that creditors are required to hold.

If the downgrade happens, the cost of financing for banks affected by the revision of the expert assessment will increase.

Amid the news that the agency is reviewing the ratings of creditors, futures on US stocks showed a drop. The Dow index opened down 250 points, 0.7%. S&P 500 futures also fell 0.7%, while Nasdaq futures showed a 0.8% decline.

The current state of affairs in the American banking sector is not characterized by stability and clarity regarding prospects. This part of the American financial and economic system has experienced serious shocks after the collapses of Silicon Valley Bank, Signature Bank, and First Republic.

The other three major lenders that are in the agency’s sights are Truist (TFC), Cullen Frost, and U.S. Bancorp (USB). In this case, experts say that the revision of the credit ratings of these financial institutions has the same reasons that are relevant for the three previous banks, but their situation is also aggravated by the growth of risks associated with commercial real estate.

Currently, the value of offices as real estate objects is rapidly decreasing in the United States. This state of affairs arose as a result of scaling up the remote work format against the background of the coronavirus pandemic. The current situation has provoked fears that banks that finance commercial real estate transactions may incur losses. In this case, regional and community creditors are at the greatest risk.

Moody’s stated that most regional-level financial institutions have relatively low regulatory capital compared to US banking giants and their global counterparts.

The income indicators of American lenders in the second quarter of 2023 testified to a significant increase in financing costs and an increase in pressure on profitability. In part, the current situation in the banking sector is due to the ongoing implementation of the rate hike strategy in the United States.

Moody’s has already downgraded 10 small US banks, including Commerce Bancshares (CBSH), BOK Financial Corporation, and M&T Bank Corporation. The Agency explained that in this case, the decision was influenced by the risk factor of reducing the value of assets of financial institutions. This factor is of particular relevance for small and medium-sized lenders who conduct operations with commercial real estate.

The agency also forecasts a moderate recession in the United States in early 2024. If this scenario is implemented, credit conditions will tighten in the United States and banks will face an increase in loan losses.

As we have reported earlier, Fitch Downgrades US Debt Rating From AAA to AA+.