Investors dumped shares of regional bank stocks on Tuesday after Moody's made changes to the credit outlook for more than two dozen banks across the group.
Moody's downgraded the credit of 10 small regional banks by one notch apiece, while 17 other banks were either given negative outlook or had their rating put under review.
In a note, Moody's cited many of the concerns around interest rate risk that led to the collapse of several regional banks earlier this year.
"US banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets. Meanwhile, many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital," the Moody's note said.
Among the banks that were downgraded on Tuesday, shares of M&T Bank fell 1.5% and Webster Financial dipped 0.9%. Shares of PNC Financial and Citizens Financial Group, which were given negative outlooks by Moody's, slid by roughly 1.8% and 1.6%, respectively.
The declines dragged down the SPDR S&P Regional Banking ETF (KRE) by about 1.3%. The fund was down more than 4% at its session low, which would have made for its worst day since May, but regional bank stocks trimmed their losses in afternoon trading.
The KRE is now down more than 17% to date. Its lowest close of the year came at $36.08 per share on May 4, shortly after First Republic failed and was taken over by JPMorgan Chase.
Regional bank stocks have stabilized and climbed since then, but still remain well below their levels in March before the start of the bank runs that helped to bring down Silicon Valley Bank. The bank ETF lost more than 28% in March.