Posted on 6th Sep 2012 @ 7:48 AM

The outlook for the United States banking system remains negative, according to Moody’s Investors Service in its new “Banking System Outlook: United States of America.” The report, which was announced on September 4, said ongoing challenges in the operating environment are expected to continue to pressure banks over the next 12-18 months.

“Our negative outlook for the US banking system reflects a challenging domestic operating environment, with prolonged low interest rates, high unemployment, weak economic growth and fiscal policy uncertainties,” said Senior Vice President Sean Jones. “Additionally, the threat of contagion stemming from the European sovereign debt crisis undermines economic recovery in the US and exposes banks to a heightened risk of shocks.”

Moody’s added, “Macroeconomic challenges trump the fact that Moody’s rating outlooks on most US banks have changed to stable from negative in the past two and a half years, with the common driver being banks’ improved ability to handle risks due to their larger capital and liquidity buffers. In addition, since 2010 most banks have returned to profitability.

“But US banks remain in recovery mode, which is prone to reversal if the economy takes a turn for the worse,” Moody’s said. “Nonperforming asset levels are still high, and legacy issues from the financial crisis will take years to resolve, with the latter ranging from the rundown of ‘non-core’ assets to litigation issues and mortgage repurchase demands,” says Moody’s. “Further, many banks still have significant asset concentrations.”

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