Silicon Valley Bank collapse fallout: Moody's changes outlook on US banking system to 'negative'

Amid possible contagion fears over collapse of three banks within a week, Moody's Investors Service on Tuesday revised its outlook on the US banking system to "negative" from "stable", citing heightened risks for the sector .

Bank runs at Silicon Valley Bank, Silvergate Capital Corp and Signature Bank have deteriorated the operating environment for the sector that is now battling a crisis of confidence, both from investors and depositors, the ratings agency said.

Moody's also said it was expecting the Federal Reserve to continue tightening monetary policy, in contrast to some others who are expecting the bank collapses this month to reshape the trajectory for interest rate hikes.

However, bank stocks jumped on Tuesday, recovering some ground after the failure of Silicon Valley Bank and Signature Bank triggered heavy selling by investors who were already anxious about the impact on lenders of rising interest rates.

Worries about potential contagion had also slammed bank shares in Asia and Europe as investors re-examined their risks, despite assurances from US President Joe Biden and other global policymakers that the financial system is safe.