One of the world’s leading credit rating agencies, Moody’s, has downgraded 10 regional US banks and put 6 larger banking groups up for review.
Moody’s suggest that the US “has several sources of strain on the US banking sector”.
Many regional banks have less onerous capital requirements than the large US banks or indeed UK and EU bank capital adequacy requirements.
Higher interest rates are putting a strain on US banks given more loans defaults and arrears and concerns are increasing on the profitability of the same.
The US is forecast to move into recession next year as is the UK and Europe, so additional strain will come and even these downgradings added to another credit rating agency Fitch downgraded the US as a whole from AAA given the debt ceiling problems i.e., the US government borrowing even more and needing to get further increases in borrowing limits through Congress.
That said, ‘putting on review’ does not necessarily means a downgrade, it could mean an upgrade but we think downgrades are likely for big US banks too and this will hit stock markets. Be mindful of any over exposure to US stocks market funds as we head towards the end of the year after year highs set recently for the Dow Jones and S&P 500.