Three big banks in the USA failed last week and Moody’s Investors Service, one of the biggest credit rating companies, was not happy about it. Moody’s gave a bad review to the whole banking system by changing its opinion from “stable” to “negative”. This happened because these bank failures were bad for business and made things go downhill really quickly according to them.
Moody’s Negative Opinion of US Banking Industry
Moody’s Investors Service, a credit rating agency from America, has decreased their opinion of the US banking industry from “stable” to “negative.” The main reason for this was because three banks in the United States had gone bankrupt within one week. Silvergate Bank chose to give up and close itself down, while Silicon Valley Bank (SVB) suffered from a large loss of customers on Thursday.
The FDIC (Federal Deposit Insurance Corporation) announced on Sunday that they took control of two banks: SVB and Signature Bank. Because of this, SVB has become the second biggest bank to fail since Washington Mutual in 2008, with Signature Bank following closely behind.
Monday, Moody’s said that because a few different banks, like Silicon Valley Bank, Silvergate Bank and Signature Bank had money taken out of them, it led them to change their thinking about the US banking system from how it was before.
The credit agency said that even though the U.S. government tried to help people in need, it was still alarming to see how quickly depositors and investors could lose their confidence in banks due to the rising interest rates, which made managing money for the banks even more difficult.
Experts said that while it is helpful for banks to have the government’s extra money services, some of them could have difficulty because they have made losses on investments, and many people with large amounts of money in their accounts may take them out. This could lead to problems getting funding, having enough cash or money, making a profit and keeping their business safe.
The U.S government just made a new plan called the Bank Term Funding Program (BTFP). This is because Janet Yellen, who is the Treasury Secretary, decided that two big banks named SVB and Signature need to be saved.
Goldman Sachs and other people in the financial market don’t think the Federal Reserve will raise interest rates this month, but Moody’s thinks it should. The report from Moody’s said that if the Fed continues to increase interest costs like they plan, this might make things harder on some banks.
Moody’s, a credit agency, said that there will be lots of pressure on the U.S. banking system in the future, and this could cause interest rates to stay higher for longer. This also means banks will have to pay more money in deposits, which would mean fewer earnings.
What do you think this downgrading of U.S. banks by Moody’s will mean for our economy? Let us know your thoughts in the comments below!
We got some photos from Shutterstock, Pixabay and Wiki Commons, as well as one from Daniel J Macy.