Moody’s cuts the credit rating of several US banks

The US government isn’t the only one at the ratings downgrade party.

This week, Moody’s downgraded the credit rating of 10 small and mid-sized US banks by one rung, and placed several big Wall Street names – including BNY Mellon, U.S. Bancorp, State Street, and Truist Financial – on negative review.

🤔 What does this mean?... Bank credit ratings are estimates of how likely a bank is to go out of business or default. Though, as a consumer, you’re likely not at risk if your bank has a bad credit rating, as long as your accounts are FDIC insured.

The reasons for the downgrades, per Moody:

• Increased funding costs, profitability pressures, a looming recession, rising risks tied to commercial real estate, and slowing loan growth were a common theme in banks' Q2 earnings.
• For the bigger banks, issues vary by lender. Some, including U.S. Bancorp and Truist Financial, have low capital buffers that could make them vulnerable in a time of renewed crisis, Investopedia reports. Others, including State Street and BNY Mellon, have experienced significant outflows in non-interest bearing deposits (i.e., people are increasingly taking money out of checking accounts).

🏦📉 Blast from the past: Not that long ago – this past March – Silicon Valley Bank and Signature Bank collapsed and triggered a run on deposits across the banking industry. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.