Credit ratings agency Moody’s has put six U.S. banks on review for downgrade, including First Republic Bank, which is one of the largest in the country—a decision that follows the collapse of two banks over the weekend.
In addition to First Republic, the banks under Moody’s downgrade review include Comerica Inc, UMB Financial Corp., Zions Bancorp., Western Alliance Bancorp., and Intrust Financial Corp. The decision by the agency comes after the downfall of Silicon Valley Bank (SVB) and Signature Bank, triggering worries about the health of the American banking sector.
On Mar. 13, Moody’s announced it was placing “all long-term ratings and assessments” of First Republic Bank on review for downgrade. First Republic is the fourteenth largest bank in the United States.
Moody’s pointed out that the share of First Republic’s deposits above the Federal Deposit Insurance Corporation’s (FDIC) insurance threshold is “material,” thereby making the institution’s fund profile “more sensitive” to rapid and large withdrawals by depositors.
“If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS [available for sale] or HTM [held-to-maturity] securities, which as of December 2022 represented 37.7 percent of its common equity tier 1 capital,” Moody’s said.
“Such crystallization of losses, if it were to happen, could materially weigh on the bank’s profitability and capital, which at the same date were modest compared to peers.”
Banking Sector Hit Hard
The current banking crisis kicked off on Mar. 10 when Santa Clara-based Silicon Valley Bank (SVB) failed. With more than $200 billion in assets, SVB’s collapse is the second-largest bank failure in the history of the country.
On Mar. 12, U.S. regulators announced they were intervening to shut down Signature Bank, which is the third-largest bank failure in American history. On Monday, Moody’s downgraded the debt ratings of Signature Bank into junk territory.
Subsequent collapses sapped investor confidence in American banks, as seen in the stock market on Monday.