High interest rates and numerous other economic factors have contributed to several major US Banks receiving credit rating downgrades by a major U.S. credit agency.

S&P Global is one of the three major credit agencies in the United States tasked with rating U.S. banks basic reliability and fiscal responsibility by reviewing risks related to funding, liquidity, and quality of their assets.  Recently, S&P Global downgraded five U.S. banks because these factors have either seen more risk, less liquidity and lower quality assets.

Early in August, Moody’s, which is another major credit agency, also downgraded the credit rating of 10 additional U.S. banks.

“While many measures of asset quality still look benign, higher rates are pressuring borrowers, and nonperforming assets, delinquencies, and charge-offs are rising toward at least their historical averages,” S&P Global said in a statement regarding the five banks. “Amid higher for longer interest rates, we expect further asset quality deterioration. Banks with material exposures to commercial real estate (CRE), especially in office loans, could see some of the greatest strains on asset quality, depending on the makeup and quality of underwriting on their portfolios.”

S&P Global downgraded Associated Banc-Corp., Comerica Inc., KeyCorp, UMB Financial Corp. and Valley National Bancorp.  Two banks, River City Bank and S&T Bank, were actually rated very harshly with a negative future outlook.

Inflation is down from its high of 9.1% in June 2022 to 3.2% in July, however the federal funds rate remains around 5.5% making the cost to borrow money rather high.

The United States credit rating has been “AAA” rated for years, and Fitch Ratings has downgrade the United States to a “AA+” rating because it sees how the federal government can’t control its spending for years ahead.

“That said, following this review, about 90% of the banks we rate have stable outlooks while only 10% have negative outlooks and none have positive outlooks,” according to S&P Global. “The preponderance of stable outlooks reflects that stability in the U.S. banking sector has improved significantly in recent months, as evidenced by more modest deposit declines than feared following the bank failures of March and April 2023, continued solid earnings, and still relatively good funding metrics by historical standards.”