Moody's Investor's Service has downgraded the credit rating of a regional bank with a strong central Illinois presence. The one notch reduction of Commerce Bank from a1 to a2 is among downgrades of 10 small to mid-sized banks.
Moody's cited the impact of a potential recession next year and higher interest rates on the quality of corporate debt and strains that could erode profitability. Banks have to pay higher interest rates to hold deposits while interest payments they get from loans fail to keep up. A downgrade also means affected banks will have higher costs to borrow. The size of the cost increase depends on the balance sheet holdings of each bank.
The Kansas City-based Commerce Bank has central Illinois branches in Bloomington, Normal, Champaign, Peoria, Metamora, and Pekin.
In a statement, Commerce Bank said it remains among the highest rated banks in the country and pointed out Moody's outlook for Commerce Bank is stable over the next year to year and a half.
"At a baseline credit assessment of a2, we remain two ratings above the baa1 median U.S. Bank and share this rating with only ten other banks in the U.S.," said the bank.
Moody’s also warned it is tracking some of the nation’s biggest lenders for potential downgrades. As part of its release, Moody’s issued negative outlooks on 11 other banks and put six banks on review for a downgrade.
The downgrades come after the collapse of three regional banks earlier this year — Silicon Valley Bank, Signature Bank, and First Republic Bank. That sparked concerns about bank stability nationwide.
It started in March with the surprise collapse of Silicon Valley Bank, once the nation’s 16th largest bank, when depositors grew fearful of the bank’s solvency and made a classic bank run. Signature Bank and First Republic Bank soon followed, leading to more concerns about the banking industry’s stability.
