![]() banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody's warned that a worsening in asset quality is on the horizon. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion," the analysts added. "Risks may be more pronounced if the U.S. Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody's noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending. interest rates also are moving higher because of multiple factors, which will put further pressure on banks' fixed-rate assets." "Interest rates are likely to remain higher for longer until inflation returns to within the Fed's target range and, as noted earlier, longer-term U.S. "We expect banks' ALM risks to be exacerbated by the significant increase in the Federal Reserve's policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT," Moody's said in the report. The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation. Though authorities went to great lengths to restore confidence, Moody's warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks' commercial real estate (CRE) portfolios." "Meanwhile, many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. ![]() banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets," Moody's analysts Jill Cetina and Ana Arsov said in the accompanying research note. Īmong the smaller lenders receiving an official ratings downgrade were M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial. Moody's also changed its outlook to negative for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp. Personal Loans for 670 Credit Score or Lower Personal Loans for 580 Credit Score or Lower ![]() Best Debt Consolidation Loans for Bad Credit
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