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S&P Downgrades Multiple U.S. Banks Amid Funding Risks and Weaker Profitability
Credit Rating Downgrades and Revised Outlook
S&P Global has taken the decision to lower credit ratings and revise the outlook for several U.S. banks, following a similar move by Moody's. The rating agencies have expressed concerns about funding risks and weaker profitability, which they believe will test the credit strength of the banking sector.
Downgraded Ratings and Reasons
S&P has downgraded the ratings of Associated Banc-Corp and Valley National Bancorp, citing funding risks and a higher reliance on brokered deposits. Additionally, UMB Financial Corp, Comerica Bank, and Keycorp have also faced downgrades due to large deposit outflows and prevailing higher interest rates. The sharp rise in interest rates has put pressure on the funding and liquidity of many U.S. banks, leading to these downgrades.
Outlook and Potential Downgrades
High Commercial Real Estate Exposure and Moody's Actions
S&P has also downgraded the outlook of S&T Bank and River City Bank to negative from stable, primarily due to their high exposure to commercial real estate. Moody's, on the other hand, has recently downgraded the ratings of 10 banks by one notch and placed six banking giants, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, under review for potential downgrades.
Confidence Crisis and Emergency Measures
The collapse of Silicon Valley Bank and Signature Bank earlier this year has sparked a crisis of confidence in the U.S. banking sector. This has led to a run on deposits at various regional banks, despite authorities implementing emergency measures to restore confidence.
In conclusion, S&P's decision to downgrade the credit ratings of multiple U.S. banks reflects concerns about funding risks, weaker profitability, and prevailing higher interest rates. The outlook for some banks has also been downgraded due to factors such as high exposure to commercial real estate. The recent confidence crisis in the banking sector, triggered by the collapse of certain banks, has further exacerbated the challenges faced by regional banks.
Implications for New Businesses
The recent downgrades of multiple U.S. banks by S&P Global could have significant implications for new businesses.
Impact on Funding and Profitability
New businesses often rely on banks for funding, and the downgrade of these institutions could impact the availability and terms of such funding. The weaker profitability of these banks could also lead to stricter lending criteria, making it harder for new businesses to secure necessary capital.
Effect on Confidence and Stability
The crisis of confidence in the banking sector could also impact new businesses. The stability of the financial sector is crucial for the overall health of the economy, and a crisis of confidence can lead to economic instability, which can be particularly challenging for new businesses.
In conclusion, the recent downgrades of multiple U.S. banks and the ensuing crisis of confidence could pose significant challenges for new businesses. These businesses may face difficulties in securing funding, and the overall economic instability could impact their operations and growth. It's crucial for new businesses to be aware of these challenges and to develop strategies to mitigate their potential impact.