New Delhi, August 8 (IANS) Moody's has put the credit ratings of six large US banks, including Bank of New York Mellon, State Street and Northern Trust, under review for a possible downgrade, sending stocks tumbling as investors worried about more banking sector pain ahead, the media reported.
The credit ratings agency said that its warning on the three banks reflected "ongoing strain" in the US banking sector, including increased pressures on funding and potential "weaknesses" in the amount of capital lenders are required to hold, CNN reported.
A lower credit rating could push funding costs for those banks even higher.
US stocks sank on the news, with the Dow falling more than 400 points, or 1.2 per cent, lower. The S&P 500 also fell 1 per cent, and the Nasdaq was 1.2 per cent lower, CNN reported.
Bank stocks in particular fell on the news. Wells Fargo lost 2.7 per cent, JPMorgan Chase 2.3 per cent and Bank of America 3.5 per cent, among others.
The US banking industry was shaken earlier this year by the collapse of Silicon Valley Bank, Signature Bank and First Republic in quick succession, CNN reported.
On Tuesday, the KBW Bank Index fell 3.3 per cent, on track for its biggest one-day drop since May, when the collapse of regional lender First Republic Bank sent financial stocks slumping.
A series of interest rate hikes by the Federal Reserve dented US banks, a factor Moody's mentioned.
"Higher interest rates continue to reduce the value of US banks' fixed rate securities and loans and interest rate risk is not captured well in US bank regulation and thus can create liquidity risks," Moody's noted in each of the warnings, CNN reported.