Credit bureau Moody’s is investigating whether it should lower the credit ratings of six regional US banks. The move follows the turmoil in the banking system caused by the American Silicon Valley Bank (SVB) collapse.
First Republic Bank, Western Alliance Bancorp, Intrust Financial, UMB Financial, Zions Bancorp and Comerica are the six regional lenders under review by Moody’s and may receive downgraded credit ratings. Moody’s also withdrew its rating for Signature Bank. The US authorities closed this crypto bank from New York last weekend, with customers receiving their funds back.
Moody’s is concerned, among other things, about the decline in the value of the bonds in the banks’ portfolios. For example, SVB encountered problems because the bank had to sell bonds at a loss to raise money when an accountant came to collect his assets. However, due to the sharp rise in interest rates, previously purchased bonds have become less valuable. As long as the banks hold these bonds until maturity, there is nothing to worry about, but as soon as they have to be sold before maturity, this leads to actual large losses.
The regional banks, therefore, fell hard on Wall Street on Monday. San Francisco-based First Republic plunged 62 percent, and Phoenix-based Western Alliance lost 47 percent. Comerica from Dallas fell 28 percent.
First Republic, in particular, is sensitive to rapid, large customer withdrawals, according to Moody’s. In such a bank run, First Republic may have to sell bonds to convert the so-called unrealized or paper losses into actual losses.
In December, First Republic’s available-for-sale and held-to-maturity bonds constituted more than a third of the bank’s buffer to absorb any losses. In addition, the First Republic has already indicated that it has since improved and diversified its financial position with access to additional money from the Federal Reserve and JPMorgan Chase.
