The international rating agency Moody’s worsened to negative from a stable outlook on the U.S. banking system, following a press release from the agency. What will happen to the major stock indices, especially the S&P 500, is anyone’s guess. 

“We have worsened our outlook on the U.S. banking system to negative from stable to reflect the rapid deterioration of the operating environment following the massive deposit withdrawals at Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank (SNY) and the collapse of SVB and SNY,” Moody’s wrote.

California state regulators closed Silicon Valley Bank (SVB) on March 10, the largest bank failure in the U.S. since the 2008 financial crisis. Also, the cryptocurrency-oriented bank Silvergate was announced to close on March 8 and the similar New York-based Signature Bank on March 12.

As the agency notes, the pandemic fiscal stimulus and ultra-low interest rates have led to a significant surplus of deposit creation in the U.S. banking sector. Some banks have invested these deposits in longer-maturity fixed-income securities, which have lost value because of the U.S. Federal Reserve’s rate hike, and this has led to significant losses.

Overall, Moody’s indicates that the banks for which the agency provides ratings have good capital reserves. However, the profitability of many banks will decline going forward, the agency predicts.

Earlier, we reported that Signature Bank is closed due to systemic risks after the collapse of SVB.