State Street Sees Moody’s US Banking Cut ‘Terrible Overreaction’

(Bloomberg) — The head of one of the world’s largest asset managers called Moody’s Investors Service’s outlook cut for the US banking system “a terrible overreaction” and said regulators had reassured the market following the collapse of three lenders.

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“There were a lot of unique circumstances around the banks in question — both on the asset and liabilities side,” State Street Corp. Chief Executive Officer Ron O’Hanley said in an interview with Bloomberg TV on Wednesday. “I don’t think it’s helpful when rating agencies treat entire sectors the same way.”

Moody’s earlier this week cut its outlook for the US banking system to negative from stable, citing the run on deposits at Silvergate Capital Corp., SVB Financial Group’s Silicon Valley Bank and Signature Bank that led to their collapse. Although federal regulators said that all deposits will be made whole, the rapid decline in depositor and investor confidence “starkly highlight risks in US banks’ asset-liability management,” the agency said.

The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. took extraordinary measures Sunday to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Fed officials said was big enough to protect the entire nation’s deposits.

“Regulators were in a very difficult spot,” O’Hanley said. “On the one hand I don’t believe SVB by itself was a systemic risk to the system, but on the other hand there was clearly contagion going on. I think regulators needed to provided some reassurance to the market and they’ve done that with the facility. This is all about faith and trust.”

Separately, O’Hanley said that he expects the trend of interest rate rises to continue and that although the Federal Reserve may pause, inflation is still rising.

“We don’t expect cuts at the end of the year,” he said.