The shares of U.S. banks experienced a decline on Tuesday as concerns over tighter regulations and potential downgrades by Fitch Ratings cast a shadow over the sector’s well-being.
Federal Deposit Insurance
Federal Deposit Insurance Corporation Chairman Martin Gruenberg’s announcement
on Monday about proposing new rules to overhaul the way large regional banks prepare “living wills” had an impact. These “living wills” provide detailed strategies for winding down operations in the event of their failure. Such measures come as part of broader regulatory changes and that U.S. authorities are pursuing to strengthen oversight of the banking system following the collapse of several institutions in March.
Amid these developments, Fitch Ratings cautioned that it might downgrade a number of major U.S. banks. This comes a few weeks after Moody’s, a rival credit rating agency
lowered ratings for ten mid-sized lenders due to concerns about funding risks and reduced profitability.
The S&P 500 banking index
The S&P 500 banking index (.SPXBK) experienced a 2.5% drop, hitting its lowest point in a month. Notable banks such as JPMorgan Chase (JPM.N) also saw a nearly 4% decline, and Bank of America (BAC.N), Wells Fargo (WFC.N), Goldman Sachs Group (GS.N), Citigroup (C.N), and Morgan Stanley (MS.N) also saw declines ranging from 1.7% to 2.1%.
Jack Janasiewicz, portfolio manager and lead strategist at Natixis Investment Managers, noted that the market had already factored in some of these concerns, indicating that the downgrades were reflecting existing sentiment. He mentioned that it is a reflection of the general mood within the market.
Mid-sized banks
Among mid-sized banks, Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) experienced drops exceeding 3%, respectively. Michael Burry’s Scion Asset Management disclosed on Monday that it had divested its holdings in both banks. Comerica (CMA.N) and KeyCorp (KEY.N) were also part of the downward trend, and each declining by more than 4%.
The benchmark 10-year U.S. Treasury yields briefly reached a nearly 10-month high at 4.274% on Tuesday before retracting, causing speculation that the Federal Reserve might extend its period of maintaining low interest rates.
Quincy Krosby, Chief Global Strategist at LPL Financial
remarked that observers will be watching whether the increase in interest rates could further stress small and regional banks.
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