Slow Recovery of Bank Stocks Following Regional-Banking Crisis Raises Red Flag

Despite deposits at U.S. banks stabilizing and easing fears of more banks going under following the regional-banking crisis sparked in part by rising interest rates, the fallout has kept bank stocks in the doldrums. Since mid-March when regulators took control of Silicon Valley Bank (SVB), the KBW Nasdaq Bank Index has fallen 6.5%, in contrast to the S&P 500’s gain of 12% over the same period. Further challenges banks are confronting are the higher yields on 10-year Treasury notes has “forced banks to pay out more interest on deposits and other funding sources,” while “returns from lending at higher rates have been slower to catch up.” Back in mid-August a Fitch Ratings analyst warned that the banking industry has inched closer to the “risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase.” News of the warning comes following a previous assessment cut of the industry’s health by Fitch in June. Fallout from another one-notch downgrade of the industry’s score to  A+ from AA- “would force to reevaluate ratings on each of the more than 70 U.S. banks it covers,” and since “banks can’t be rated higher than the environment in which they operate — as would be the scenario for JPMorgan and Bank of America, the ripple effect of a cut to top institutions would lead to Fitch at least considering downgrades on all their peers’ ratings, potentially pushing “some weaker lenders closer to non-investment-grade status.”