FintechMode Moody's U.S. Lenders

Moody’s Puts Six US Lenders on Review for Downgrade Amid Regional Financial Firms’ Woes

Credit rating company Moody’s has placed six US lenders, including First Republic Bank, under review for possible downgrade. The move reflects concerns over the overall health of regional financial firms following the recent collapse of Silicon Valley Bank.

Apart from First Republic Bank, the other five banks put on review by Moody’s are Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp., and Comerica Inc. Moody’s cited concerns over these lenders’ reliance on uninsured deposit funding, and unrealized losses in their asset portfolios.

This decision comes on the heels of a sharp decline in US bank stocks. That dip occurs despite the government’s intervention to rescue SVB’s depositors and launch a new lending facility to support lenders’ financing and prevent further bank runs. 

CryptoMode-DeFi-TVL-Collapse Silicon Valley Bank

Over the weekend, Moody’s downgraded Signature Bank and withdrew its credit rating following the bank’s closure.

On Monday, First Republic Bank’s stock plummeted by 62%, while Phoenix-based Western Alliance Bank saw an unprecedented 47% decline. Dallas-based Comerica also experienced a significant slide, losing 28% of its value.

In the case of First Republic Bank, Moody’s highlighted that its share of uninsured deposits exceeds the federal insurance threshold. That makes its funding profile more sensitive to rapid, large withdrawals.

Moody’s further warned that “if it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystallizing unrealized losses.” 

As of December, more than a third of the bank’s common equity tier-1 capital comprised available-for-sale and held-to-maturity securities.

In response, First Republic Bank stated that it has improved and diversified its financial position by gaining access to additional liquidity from the Federal Reserve and JPMorgan Chase & Co.

Moody’s decision to review the credit ratings of these lenders underscores the ongoing uncertainty in the regional banking industry amid mounting concerns about asset quality, liquidity, and funding pressures. 

It also underscores the need for banks to improve their asset quality, liquidity, and funding profiles. Doing so ensures long-term stability and resilience.