• Moody’s Investors Service recently downgraded the U.S. banking sector from „stable“ to „negative.“
• The credit agency warned that there is still a risk of financial disruption spilling over beyond the banking sector and causing greater financial and economic damage.
• Fitch Ratings echoed this warning, noting that other types of non-bank-related institutions could be affected by the banking contagion.

Moody’s Downgrades US Banking Sector

Moody’s Investors Service recently downgraded the U.S. banking sector from „stable“ to „negative,“ indicating a potential risk of financial disruption spilling over beyond the banking sector and causing greater financial and economic damage than anticipated.

Risk of Financial Spillover Beyond Banking Sector

The managing director of credit strategy at Moody’s explained that the country will be unable to curtail the current turmoil without longer-lasting repercussions within and beyond the banking sector. In addition, Fitch Ratings gave a similar warning, noting that other types of non-bank-related institutions may also feel knock on effects from the banking contagion.

Potential Longer Lasting Repercussions

Moody’s analysts anticipate constrained growth this year due to tight financial conditions and slow growth, with entities exposed to similar risks as troubled banks facing risks to their credit profiles in particular.

Prediction of Recession From Fitch Ratings

Last October, Fitch Ratings predicted a U.S recession would happen in spring 2023, while Moody’s analysts envision constrained growth this year despite not making an explicit forecast for a recession yet.

Conclusion

In conclusion, both Moody’s and Fitch Ratings have alerted investors about potential risks associated with ongoing turbulence in the U.S banking sector, which could result in long lasting repercussions for both banks and non-banks alike if not addressed quickly through effective policy measures or market forces.