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Why Are Banks Being Downgraded?

Aug 29, 2023

While high profile bank failures are no longer front page news, problems still exist in the banking sector. The failures of Silicon Valley Bank and Signature Bank caught the ratings agencies off guard. As a result, banks are under vigorous analysis by those who rate them to make sure that investors don't get surprised again. For example, one of the three largest ratings agencies in the world recently cut the credit ratings of more than 20 small and mid-sized banks. Moody's said that growing financial risks could reduce your profitability.

These banks include household names like Capital One, Fifth Third Bancorp, and M&T Bank. Moody's also put several major banks on notice that they might get a potential downgrade after further review. These banks include big ones like the Bank of New York Mellon, U.S. Bancorp, and Truist Financial. Another top credit rating agency, Fitch Ratings, cut its assessment of the operating environment for the banking industry in June, and it was mostly due to heightened concerns about the credit rating of the U.S. government.

One more cut will cause Fitch to reevaluate the ratings of at least 70 banks, which includes JPMorgan Chase. And that reevaluation could result in dozens of downgraded banks. So what does this mean for the average person? It means that parts of the banking industry are still fragile. One jolt, like the Federal Reserve increasing interest rates to combat higher inflation, could lead to some weakened banks or even another bank failure

That uncertainty could cause problems if you are a customer of one of these banks. It could also mean continued volatility in the U.S. economy, especially with the U.S. dollar, stocks, and bonds. Because this issue would take a while to play out, any retirement savings and investments could also be affected. One time tested strategy to weather this type of risk is diversification.

One way to diversify is to spread your wealth among several banks. Another way is to put some of your wealth into assets that aren't part of the banking system. Art and real estate are two that come to mind, but gold is the only one that's been used as money for thousands of years. And a precious metal IRA keeps a portion of my retirement account safely outside of a bank account. Mine is from U.S. Money Reserve.

If you're interested in exploring this option to protect your retirement investments from the potential of the negative impact of a banking crisis, call 1-866-646-8465 and ask to speak to a U.S. Money Reserve IRA specialist.

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