The financial sector has seen much volatility over the past week, with losses still concerned in regional bank stocks, as investors fear a potential widespread fallout from the closure of two U.S. banks in a matter of days.
Bank stocks saw some positivity on Tuesday as traders shook off losses from the closure of Signature Bank over the weekend following the failure of Silicon Valley Bank last Friday. Still, those gains were short-lived on news that Credit Suisse's
On Thursday, traders were encouraged by a Wall Street Journal report that big banks including JPMorgan Chase
The week's volatility is evidenced by swings from both the broader market Financial Select Sector SPDR Fund
While there have been some positive developments in the fallout of the SBV and SNY bank failures, the road ahead for the broader sector remains uncertain -- at least according to credit rating firm Moody's.
The firm on Monday released a report downgrading the entire banking system to negative from stable, citing a "rapid deterioration in the operating environment" for banks following the bank runs at SVB, SNY, and Silvergate in recent days.
In its report, the firm noted that while federal agencies have taken extraordinary actions to support depositors of the collapsing banks, other institutions with unrealized losses or uninsured depositors are still at risk. Moody's concerns remain.
"Banks with substantial unrealized securities losses and with non-retail and uninsured U.S. depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital," the report said.
Moody's cited the extended period of low rates and other COVID-related fiscal and monetary stimulus have impacted banking operations. SVB's failure is a good example of these impacts, as the tech-industry bank suffered billions in losses after high interest rates caused the lender to sell long-dated Treasury bonds at a loss.
The firm said it expects interest rates to remain higher-for-longer as the central bank works aggressive to return inflation to its target range of 2%. Moody's also expects the U.S. economy to fall into a recession later this year due to these persist pressures on both the consumer and the financial industry.
