Acting before the Moody’s Investors Service downgrades and negative watches on 21 U.S. banks earlier this month, Fitch Ratings Service, in June, had downgraded the “operating environment” of the U.S. banking system as a whole, to AA− from AA. This move was largely “unnoticed” at the time, according to Fox Business News’ report today. Interest rate spikes, resulting capital erosion, and inadequate profits leading to lower liquidity, were the reasons cited for this downgrade.
On Aug. 1, Fitch then announced the downgrade of U.S. federal government debt by one notch to AAA−. Then yesterday, Aug. 15, Fitch issued a statement that if it were now to downgrade the “operating environment” of the entire banking system again, from AA− to A+ (implying that it thinks it may do this soon), it would then be compelled to downgrade many U.S. banks including the biggest—JPMorgan Chase was included by name, for emphasis.
Some financial and “business” media, such as Fox and CNBC, woke up and reported this Aug. 15 statement—after having ignored the June action by Fitch. This “newsworthiness” probably resulted from Moody’s Investor Service’s intervening downgrades and negative watches on big banks.
The report by “Wall Street on Parade” website on Aug. 8, that the 25 largest U.S. banks’ deposits are continuously falling since early March, is coherent with these downgrades (essentially being forced on the ratings agencies, which remember the way they were raked over the coals after the Lehman crash for failing to downgrade mortgage-backed securities, etc.).
Despite the official “quantitative tightening” by the Federal Reserve, its balance sheet actually expanded in the accounting weeks ended Aug. 2 and Aug. 9. Overall, Fed assets have shrunk by only $150 billion (or 1.7%) since the beginning of March, a period of more than five months. And during that same period, $107 billion of Fed liquidity loans to banks under the Bank Term Funding Program have been made and are outstanding; the FDIC has another $145 billion in such loans outstanding to banks.
So, over the entire five-month period since the “bank crisis” broke out with Silvergate, Silicon Valley, Signature and Credit Suisse, this support to bank reserves by Fed and FDIC liquidity loans totaling $252 billion, has more than equaled the major banks’ “loss” in Fed support due to quantitative tightening by $150 billion. The monetary authorities have eased credit to banks while “tightening” it.
But not so for credit from the U.S. banks. Over that same five-plus month period, total credit outstanding from the banks in the U.S. banking system as a whole has fallen from $17.600 trillion to $17.280 trillion, a credit contraction of $320 billion or 2%.
