Standard & Poor’s (S&P) Global Ratings recently downgraded the issuer credit ratings and long-term debt ratings of several major U.S. banks due to concerns over their growing liquidity issues.
The downgrades affect Goldman Sachs, Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup, all of which now hold issuer credit ratings of ‘A+’, and long-term debt ratings of ‘A/A-1’, one notch below their prior ratings.
S&P’s rationale for the downgrade was based on increasing liquidity risks that have been observed recently in the U.S. banking sector. Specifically, S&P noted that these banks have seen a decrease in their core liquidity coverage ratios (CLCR)—a metric that measures their ability to absorb losses in times of distress.
The downgrade follows another warning issued by S&P in October, which noted the “cloudy outlook” of U.S. banks due to deteriorating trends in credit quality, capital strength and liquidity.
The downgrades further highlight the fragility of the U.S. banking sector, which has been among the hardest hit by the economic fallout of the pandemic. With banks already facing pressures from the Fed to de-leverage and hold more capital reserves, the downgrade could add to their struggles and further impede their ability to support ailing businesses.
