About ten days ago, Moody’s Investors Service credit agency downgraded the US banking sector’s rating from “stable” to “negative.” In a recent update on Thursday, the company stated that there is still a risk to the US economy. Moody’s general director of credit strategy explained that the country “will not be able to stop the current turbulence” and could extend “beyond the banking sector.”
Moody’s analysts anticipate further financial and economic damage from spillover effects from US banking.
In a note sent Thursday, Moody’s managing director of credit strategy Atsi Sheth explained that the US may not be able to contain the bank turmoil that began two weeks ago. The comment follows Moody’s recent downgrade of the US banking industry, which was downgraded from “stable” to “negative.” The credit agency applied the downgrade after three major US banks collapsed and the contagion spread to other US banks and some international financial institutions.
“The risk that the financial disruption could spread could unleash greater financial and economic damage than we anticipated,” Moody’s analysts wrote. According to Moody’s, banks are not the only financial institutions that can be hurt by the Federal Reserve’s constant rate hikes. “Market scrutiny will focus on those entities that are exposed to risks similar to those of troubled banks,” explains Moody’s.
The credit bureau added:
(US officials) will not be able to reduce the current turmoil without more lasting and potentially serious repercussions within and beyond the banking sector.
Moody’s credit analysts’ note is similar to the warning Fitch Ratings gave last week, which explained that other types of non-bank institutions could feel the “knock-on effects” of bank contagion. Last October, Fitch Ratings foretold a US recession would hit in the spring of 2023. Moody’s analysts see limited growth this year.
“Over the course of 2023, as financial conditions remain tight and growth slows, a variety of sectors and entities with existing credit challenges will face risks to their credit profiles,” Moody’s analysts led by Sheth concluded Thursday. .
What do you think should be done to mitigate the risks of possible spillover effects of the turmoil in the US banking sector on other financial institutions? Share your thoughts in the comments section below.
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