Analysts are now making a painful decision to downgrade big banks, including industry leader and giant JPMorgan.
A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase, reports CNBC.
“The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.
But another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC in an exclusive interview at the firm’s New York headquarters.”
“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe said.
Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist and U.S. Bank.
Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads, a move that was derided by business leaders including JPMorgan CEO Jamie Dimon, reports CNBC.
“This time, Fitch is intent on signaling to the market that bank downgrades, while not a foregone conclusion, are a real risk”, said Wolfe.
The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders.
“The country’s two largest banks by assets, JPMorgan and Bank of America, would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate.
And if top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe.
That could potentially push some weaker lenders closer to non-investment-grade status.”
Also Read: JPMorgan Now Freezes Customer Account After Whopping Withdrawal
Turbulence is Felt Across The Entire Banking Industry This Year
The 25 largest US banks are now seeing a record plunge in deposits according to the latest study conducted by the Federal Reserve Economic Data (FRED).
According to the FRED data, between July 5 and the most current reading on July 26, the 25 largest U.S. banks saw a plunge of $174 billion in deposits.
Deposits at the 25-largest domestically-chartered U.S. commercial banks peaked at $11.680 trillion on April 13, 2022, according to the updated H.8 data maintained at the Federal Reserve Economic Database.
As of the most current H.8 data for the week ending on Wednesday, July 26, 2023, deposits stood at $10.709 trillion at those 25 commercial banks, a dollar decline of $970 billion and a percentage decline of 8.3 percent.
In fact, small banks have performed better than big banks in terms of inflow.
Despite all of the misleading news reports about depositors seeking out the perceived safety of the largest banks since the banking crisis in the spring, it’s actually been the smaller banks that have staged a comeback on growing deposits since the week of April 26,” says Wall Street on Parade.
“This breakdown does not give the American people a quick pulse beat on the dangers lurking in the U.S. banking system – a system that imploded in 2008 and was on its way to imploding again this spring until the Fed stepped in with another bailout program. In the span of seven weeks this spring, running from March 10 to May 1, the second, third, and fourth largest bank failures in U.S. history occurred.
In order of size, those were: First Republic Bank (May 1), Silicon Valley Bank (March 10) and Signature Bank (March 12). The largest bank failure in U.S. history, Washington Mutual, occurred in 2008 during the financial crisis.
Because there are only four domestically-chartered commercial banks in the U.S. with more than $1 trillion in deposits – JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup’s Citibank – it behooves Americans to closely monitor what is happening at these four banks, which hold such a highly concentrated share of the banking system’s deposits and assets.
That is especially true given that one of those four banks, Citigroup, blew itself up in 2008 and received the largest Fed and Treasury bailout in U.S. banking history.”
Also Read: Money Expert Warns Government May Freeze New Bank Withdrawals
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Time to reign in the big banks with the Glass-Stegall act.
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