Digging Into the Recent Downgrades of US Midsized Banks

• Various midsized US banks recently experienced downgrades from Standard & Poor's (S&P) and Moody’s due to customer shifts to higher-yielding alternatives.
• Rising interest rates have contributed to a liquidity squeeze in the banking sector.

In recent weeks, several midsized banks in the United States have seen their rating downgrades. A significant influencing factor is the shifting of customer deposits to higher-yielding alternatives due to current rising interest rates, causing a liquidity squeeze amongst banks.

Standard & Poor's, the American financial services company, lowered its ratings for five US banks, including Associated Banc Corp, Comerica, KeyCorp, Valley National, and UMB Financial. Additionally, River City Bank and S&T Bank experienced outlook downgrades to 'negative'. In a similar move, Moody's, the bond credit rating business of Moody's Corporation, downgraded ten midsized lenders.

The downgrades are suggestive of a more significant issue affecting the banks - a liquidity squeeze. In the banking industry, a liquidity squeeze refers to a sudden shortage of cash, which typically occurs when depositors unexpectedly withdraw their deposits. In this case, it is caused by the rising interest rates.