Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

More Banks Get Credit Downgrades as Financial Crisis Continues to Bubble Under the Surface

  by    0   0

The financial crisis precipitated by rising interest rates continues to bubble under the surface.

Earlier this month, Moody’s cut the credit rating of 10 small and midsize banks. It also placed six large banks on review for potential downgrades and revised 11 more banks from a stable outlook to a negative outlook.

This week, S&P Global followed Moody’s lead and downgraded the credit ratings of five banks. It also lowered the outlook for several others

The sharp rise in interest rates and quantitative tightening deployed since March 2022 to combat high inflation are weighing on many US banks’ funding, liquidity and spread income. These factors have also caused the value of banks’ assets to fall and raised the odds of asset quality deterioration.”

The five downgraded banks are:

  • Associated Banc Corp.
  • Comerica Inc.
  • KeyCorp
  • UMB Financial Corp.
  • Valley National Bancorp

These five banks have a combined asset base of $400 billion.

KeyCorp ranks as the 20th-largest bank in the nation with $192 billion in assets. Dallas-based Comerica comes in at No. 31 in the nation with $90 billion in assets. The other three banks also rank among the 50 largest banks in the US.

In addition to the credit downgrades, S&P Global revised the outlook for River City Bank and S&T Bank from stable to negative.

Along with the impact of rising interest rates on bank balance sheets, the S&P report also cited high commercial real estate (CRE) exposure as a reason for the downgrades. We have reported that the commercial real estate sector could be the next thing to break in the economy.

As Moody’s reported when it announced its downgrades, funding risks and weaker profitability in a higher interest rate environment are squeezing the entire banking sector’s credit strength.

The Federal Reserve managed to paper over the banking crisis with a bailout program. But the growing number of banks with credit rating downgrades reveals the problem wasn’t solved.

This isn’t the only indicator of an ongoing banking crisis. Banks borrowed an additional $3.7 billion from the Federal Reserve’s bank bailout program in July. Currently, there are $106.9 billion in outstanding loans in the Bank Term Funding Program (BTFP), the highest level since the program began in March.

Most people blame the shakiness in the financial sector and the broader economy on recent interest rate hikes, but the real problem started years ago.

After the Great Recession, Federal Reserve policy intentionally incentivized borrowing to “stimulate” the economy. But this monetary inflation inevitably led to price inflation. That forced the Fed to raise interest rates. The central bank managed to cool price inflation (for now) with rate hikes. But those hikes threaten to pop the bubbles blown up with more than a decade of easy money.

In other words, high interest rates are only a problem today because the Fed incentivized so much borrowing yesterday.

The Fed bank bailouts merely slapped a bandaid on the problem. It has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.

Alasdair Macleod recently explained that rising interest rates have destabilized the entire global banking system.

The contraction of bank credit is in its early stages, and that alone will push up interest costs for borrowers. We have an old-fashioned credit crunch on our hands.”

Most people think the financial crisis ended with the collapse of three banks last spring, but it continues to bubble under the surface. It’s only a matter of time before more bank dominos fall.

Tax Free Gold and Silver Buying Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Which Central Banks Are Selling Gold?

Central bank gold buying has been a significant factor in the yellow metal’s spectacular run-up to new record highs. But with its recent small correction downward, it’s a good time to look at which central banks are selling — and why.

READ MORE →

Death of Iranian President Carries Gold, Copper to New Record Highs

Amid ongoing tension in the Middle East, Iranian President Ebrahim Raisi and the foreign minister have been confirmed dead Monday after a helicopter crash. The officials’ shocking demise casts additional investor doubt on a region already plagued by economic upheaval, with supply chain uncertainties fueling record-high metal prices this week.

READ MORE →

South Korea’s New Way to Pursue Safety

While gold bullion is most often sold in bar or 1oz coin form, the Korean retail market is benefitting from gold’s latest success with a very atypical marketing strategy. It has been traditionally thought that investors prefer larger increments of bullion because they simplify calculations and have a lower transaction cost than buying the same amount of gold in smaller increments. Demand for traditional bars and coins in South […]

READ MORE →

What Will CBDCs Mean for Gold?

With the eventual introduction of central bank digital currency (CBDCs) now seemingly inevitable, there are a lot of directions central banks could take with their digital currency projects that would have dramatic implications for the price of gold.

READ MORE →

Will the World’s Most Pro-Bitcoin Politician Embrace Gold?

Since Nayib Bukele became president of El Salvador, El Salvador has been in American media and global political discussion more than ever. While much of the attention focuses on Bukele’s mass incarceration of gang members and a decline in homicide of over 70%, Bukele has also drawn attention to his favoritism towards Bitcoin and how he […]

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now