Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

https://www.cnbc.com/2023/08/08/moo...d-puts-some-big-names-on-downgrade-watch.html

“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts Jill Cetina and Ana Arsov said in the accompanying research note.

“Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”

 

There are a few possibilities. One seems to be the banks are banking on a return of low interest rates and a flight to bonds in the not so distant future. Or it could be they have an unspoken agreement with the government that should things get dicey, government will bail them out (ala SVB). Or it could be the Fed have told them to hold their positions, because they know the punch bowl will need to be spiked again in the not so distant future. Robbing Peter to pay Paul any way you slice it.

I agree with you on the "stress tests." Just a government bureaucracy mandated to give central banks assurance, but when push comes to shove, we'll provide those banks with the liquidity they need. It's just a racket. Can't have another Lehman situation...