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Moody’s Investors Service cut the credit ratings of 10 U.S. regional banks and said it was reviewing the ratings of six other institutions, pointing to lower profits and higher funding costs.

Shares of M&T Bank (MTB), Pinnacle Financial Partners (PNFP) and Commerce Bancshares (CBSH)—among the banks Moody’s downgraded—were all down 2% or more in morning trading All the cuts were by a single notch, and all the banks remained investment-grade. You can scroll down for a full list of the downgraded banks.

Moody’s is reviewing its ratings on six others, including Bank of New York Mellon (BK), Northern Trust (NTRS), State Street (STT) and US Bancorp (USB), and has assigned a negative outlook to 11 more lenders.

The Moody’s action suggests the U.S. banking sector remains vulnerable to the problems that stirred a banking panic and brought down several smaller lenders, including Silicon Valley Bank, earlier this year. Those challenges include devalued bonds, jittery investors, customer-deposit withdrawals and higher funding costs.

The Federal Reserve’s campaign to lift interest rates to combat inflation “continues to have a material impact on the US banking system’s funding and its economic capital,” Moody’s said.

Higher rates have continued to reduce the value of bonds and other assets owned by regional banks, leaving the lenders with “sizeable unrealized losses” and vulnerable to share-price drops if investors get spooked, Moody’s said.

Meanwhile, customers have been shifting cash into accounts that pay higher interest, driving up banks’ costs and eroding their profitability. “There remains a significant risk that systemwide deposits will resume their decline in coming quarters,” Moody’s said.

The ratings firm also pointed to the prospect of a recession in early 2024 eroding demand for loans and leading to loan defaults. And it said banks could be hit by problems in commercial real estate, including higher interest rates, vacant offices due to the shift toward remote work, and reduced availability of credit.

Moody’s downgraded the following banks:

  • Commerce Bancshares (CBSH)
  • BOK Financial (BOKF)
  • M&T Bank (MTB)
  • Old National Bancorp (ONB)
  • Prosperity Bancshares (PB)
  • Amarillo National Bancorp
  • Webster Financial (WBS)
  • Fulton Financial (FULT)
  • Pinnacle Financial Partners (PNFP)
  • Associated Banc-Corp (ASB)

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