Key Takeaways:
- Fitch Ratings has warned it could downgrade several US Banks
- The warning comes days after Moody’s downgraded ten mid-sized US banks
- Further downgrades will also be dependent on the interest rates set by the Federal Reserve
YEREVAN (CoinChapter.com) — The US banking sector is facing heightened uncertainty. Fitch Ratings analyst Chris Wolfe has warned of potential rating downgrades for numerous US banks. According to a recent CNBC report, giants like JPMorgan Chase could also come under the hammer.
The initial alarm was sounded in June when Fitch Ratings downgraded the “operating environment” rating for the US banking industry from AA to AA-. Several factors impacted the decision, including pressure on the nation’s credit rating, gaps within the regulatory framework, and uncertainties surrounding the trajectory of future interest rate increases.
In the event of a further downgrade, reducing the industry’s score from AA- to A, Fitch Ratings would be compelled to reevaluate the ratings of over 70 US banks that fall under its purview, as revealed by Wolfe to CNBC.
“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,”
Wolfe told the agency.
US Banking system in trouble?
The upheaval within the American banking sector intensified earlier this month when Moody’s, downgraded ten mid-sized US banks. The popular financial services company further indicated the likelihood of similar actions for other institutions. Giants like Truist and US Bank could also come undercuts.
Commerce Bancshares, BOK Financial Corporation, M&T Bank Corporation, Old National Bancorp, and Amarillo National Bancorp were among those to be downgraded.
In a report earlier this month, Fitch warned that growth in US Banking Sector will remain slow this year.
“US bank performance should continue to be challenged in 2023, with slow growth amid elevated funding and credit costs to extend the slump in performance, particularly for small and mid-sized institutions,”
the report reads.
The path of interest rates set by the Federal Reserve is a significant factor that could lead Fitch to downgrade the industry. If interest rates remain higher than expected for an extended period, it could pressure the banking sector’s profits.
An important question is how far the Federal Reserve will go with rate hikes. According to the report, the Fed’s decision will play a crucial role in determining the impact on the banking system.
Another concern is the potential increase in loan defaults. If loan defaults rise beyond what Fitch considers normal, it could negatively affect the industry.
Defaults often go up when interest rates are raised. Fitch is particularly worried about the impact of office loan defaults on smaller US banks.
