The US banking sector has faced a rough stretch recently, with turmoil surrounding institutions such as Silicon Valley Bank and Signature Bank triggering weekend interventions. After the initial shocks, sector equities managed a solid recovery at the start of Wall Street trading, with notable strength seen in First Republic Bank, one of the hardest hit assets on Monday. The rebound sparked confidence across major Spanish banks as well, which moved back into positive territory after a sharp retreat earlier in 2023. By the close, Sabadell had gained 4.50 percent, CaixaBank 4.09 percent, BBVA 3.42 percent, Santander 3.02 percent, Bankinter 2.83 percent and Unicaja 2.06 percent. The overall Spanish market also recovered, with the selectivity index climbing by 9,159 points.
In the United States, shares of San Francisco based lenders surged at the open, rising as much as 63.3 percent before paring gains to about 48 percent as the day progressed. Smaller banks such as PacWest, Zions Bancorp, KeyCorp and Western Alliance posted substantial intraday moves after concerns about contagion eased on Tuesday. These movements were reported by Europa Press.
Across the larger national banks, gains were more measured but still positive on Tuesday. Wells Fargo advanced about 5.29 percent, Citigroup 5.30 percent, and Bank of America roughly 2.49 percent, while Goldman Sachs rose just over 2 percent. Morgan Stanley gained 3.57 percent and JPMorgan Chase about 1.44 percent.
The rating agency Moody’s subsequently adjusted its outlook for the US banking sector from stable to negative, reflecting the rapidly deteriorating operating environment following the failures of institutions like Silvergate Bank and Signature Bank. While authorities including the Treasury, the Federal Reserve and the FDIC provided support to affected clients, depositor and investor confidence sagged, underscoring risks in asset and liability management amid rising interest rates.
The federal response via the Fed’s Bank Term Funding Program offers some relief, yet Moody’s notes continued pressure ahead. Higher funding costs and tighter policy are likely to compress bank profitability, especially for institutions holding a larger share of fixed-rate assets. The agency cautions that the baseline scenario calls for ongoing monetary tightening, which could intensify challenges for certain banks, even as some investors seek safer assets.
Moody’s maintains that the environment could keep tightening and that the shift toward safer holdings might persist. The agency also noted the possibility of a mild recession in the latter half of the year, with a gradual rise in unemployment potentially helping inflation ease and leaving the Federal Reserve with more latitude in 2025. Real GDP growth would likely stay below trend in the near term.
Negative outlook for several banks
Related developments include Moody’s placing the long term ratings of First Republic Bank under review, along with several smaller US lenders such as Comerica, Zions Bancorporation, UMB Financial, Intrust and Western Alliance. The downgrades reflect volatile funding conditions and the risk of uninsured deposit outflows that could threaten liquidity.
For First Republic specifically, the rating agency warned that if deposit outflows prove larger than expected, liquidity support might fall short. In such a scenario, the bank could be forced to sell assets to crystallize losses from securities, which would weigh on profitability and capital. The assessment underscores how rapidly shifting market conditions can affect even previously well capitalized institutions.