Policy Backgrounders
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Navigating the Economic Storm

Policy Backgrounders

CED’s Policy Backgrounders provide timely insights on prominent business and economic policy issues facing the nation.

Downgrades for US Banks and Proposed Capital Rules

August 17, 2023

Moody’s lowered its ratings or outlooks for 27 US banks in August following similar moves in March and April amid spring’s banking crisis.

  • Moody’s report highlighted banks’ continued challenges with funding costs, commercial real estate exposure, and declining profitability, noting that a potential recession could exacerbate stresses if asset quality deteriorates further.
  • The report follows US regulators’ newly proposed capital requirements at the end of July that aim to better reflect underlying risks and to bring midsize and large banks into a consistent framework. The proposed rules would raise required capital for banks over $100 billion in assets by an average of 16 percent.
  • Moody’s identified the proposed rule changes as a “credit positive” for affected midsize and large banks, while viewing the lower capital and liquidity requirements remaining in place for smaller banks as a negative. Moody’s stated that its future ratings may need to be differentiated according to the rigor of regulatory standards to which banks are subject.

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Authors

Dr. Lori Esposito Murray

Dr. Lori Esposito Murray

Former President

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Mitchell Barnes

Mitchell Barnes

Senior Economic Policy Analyst

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