New York, March 15,2023:  Ratings giant Moody’s has warned of more pain ahead for the US banking system after a run on deposits led to the collapse of Silicon Valley Bank, BBC reported.

Moody’s cut its outlook for the sector to “negative” from stable, warning of “a rapid deterioration in the operating environment”.

The downgrade came as banking shares in the US and Europe rebounded following earlier losses, BBC reported.

But Moody’s said some other banks faced risks of customer withdrawals.

It said rising interest rates also pose a challenge, exposing banks that bought assets such as government bonds when interest rates were low, to potential losses.

“Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight,” Moody’s said in the report, BBC reported.

“We expect pressures to persist and be exacerbated by ongoing monetary policy tightening, with interest rates likely to remain higher for longer until inflation returns to within the Fed’s target range.”

Authorities have acted quickly to try to contain fallout after the shock collapse of Silicon Valley Bank (SVB), the 16th largest in the US.

US regulators took over the bank and said they would guarantee deposits beyond the $250,000 level typically insured by the government. They took similar steps at the smaller Signature Bank.

Officials from the Department of Justice and Securities and Exchange Commission are now investigating the collapse, the US media reported.

Reports have suggested that some customers of smaller US banks have been trying to put their money into bigger institutions.

However, ratings agency S&P Global said it hadn’t seen evidence of runs on banks other than at those that had collapsed, BBC reported.