Moody's credit rating agency stated that the US banking sector remains strong despite the downgrade of ten US banks. Moody's said in a note, "Results from several banks in the second quarter showed increasing pressure on profitability that will reduce their ability to generate internal capital." It added, "This comes at a time when a moderate recession in the United States looms in early 2024, and it appears that asset quality is deteriorating with specific risks in the commercial real estate portfolios of some banks." The agency warned of potential downgrades for several other major banks.
Moody's Managing Director for Financial Institutions, Anna Arsenov, said in an interview with Reuters, "What we are doing here is acknowledging that there are some headwinds. We are not saying that the banking system is in distress." Co-Managing Director at Moody's, Jill Cetina, remarked, "We feel that the pressure from rising interest rates and tighter monetary policy is likely to ease." The bank stock index on the S&P declined by two percent after Moody's downgraded 27 banks on Monday, highlighting the challenges arising from interest rate hikes, increasing financing costs, and the potential for a recession that could impact profits.
