S&P Global Ratings downgraded five regional U.S. banks by one notch and lowered its outlook for several other lenders, following a similar move by Moody's.
Regional banks were at the epicenter of recent upheaval within the financial sector after the stunning collapse of Silicon Valley Bank and Signature Bank triggered a deposit run in early March.
Authorities rushed to shore up confidence in the banking system with the launch of several emergency measures, but regional banks remain on edge. The back-to-back downgrades come in the midst of the most aggressive monetary policy tightening campaign in decades. The in July approved another interest rate hike, lifting the benchmark rate to the highest level since 2001. Higher interest rates have created more pressure on small- and mid-sized banks, which are seeing a spike in depositors who have "shifted their funds into higher-interest bearing accounts," increasing banks' funding costs, S&P said in an accompanying research note.
"While many measures of asset quality still look benign, higher rates are pressuring borrowers, and nonperforming assets, delinquencies, and charge-offs are rising toward at least their historical averages," S&P said. "Amid higher for longer interest rates, we expect further asset quality deterioration."
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