S&P Global Ratings has not seen any widespread deposit outflows among U.S. banks since placing First Republic Bank (NYSE:FRC) on CreditWatch negative, the ratings agency said on Tuesday. This comes just hours after Moody’s Investors Service revised its outlook on the U.S. banking system to “negative” from “stable” due to the rapid deterioration in the operating environment.
S&P credits U.S. regulators’ measures for giving banks additional liquidity, but the ratings agency cautions that conditions are fluid and some banks are showing greater signs of stress than others. While S&P has not placed any other U.S. banks on CreditWatch negative, Moody’s outlook cut has sparked concerns in the industry.
Moody’s Negative Outlook on the U.S. Banking System
Moody’s revision of the U.S. banking system’s outlook to negative reflects the challenges that banks face in the current environment. The pandemic has caused significant disruptions to the economy, leading to increased loan delinquencies and defaults, which have impacted the banking sector.
While the U.S. government’s stimulus measures have provided some relief, the uncertain economic outlook continues to weigh on the banking sector. Moody’s expects that the prolonged economic downturn will lead to credit losses, putting pressure on banks’ earnings and capital levels.
State Street CEO Criticizes Moody’s Outlook Cut
Ron O’Hanley, the CEO of State Street Corp (NYSE:STT), has criticized Moody’s outlook cut, calling it “a terrible overreaction.” O’Hanley believes that the U.S. banking system is well capitalized and has sufficient liquidity to weather the current crisis.
O’Hanley’s comments echo those of other banking executives who have expressed confidence in the banking system’s ability to withstand the current crisis. However, Moody’s negative outlook serves as a reminder that the banking sector faces significant challenges in the current environment.
Conclusion
While S&P sees no widespread deposit outflows among U.S. banks, Moody’s negative outlook on the U.S. banking system highlights the challenges that the sector faces. The uncertain economic outlook and the potential for credit losses continue to weigh on banks’ earnings and capital levels.
While some banking executives have expressed confidence in the banking system’s ability to withstand the crisis, the industry should remain vigilant and take measures to strengthen their balance sheets. This includes increasing capital levels and managing risk effectively.
