After the collapse of Silicon Valley Bank, rating agency Moody’s Investors Service has shifted its outlook on the US banking system from “stable” to “negative” and placed six other banks on review for downgrade. 

The banks placed under review for downgrade are First Republic Bank, Zions Bancorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp and Intrust Financial Corporation, Moody's said.

“The review for downgrade reflects the extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows,” Moody’s said in a statement on Tuesday. 

It added that a “material” amount of deposits is above the Federal Deposit Insurance Corporation (FDIC) threshold.

“Ratings could be downgraded if the bank’s deposit base has eroded markedly, triggering asset sales, loss crystallization and a higher reliance on market funding,” it added.

State regulators closed Signature Bank on Sunday, the third largest failure in U.S. banking history, two days after authorities shuttered Silicon Valley Bank in a collapse that stranded billions in deposits.

Moody's, which rated Signature Bank's subordinate debt 'C', said it was also withdrawing future ratings for the collapsed bank.

Tuesday’s watch assessment comes after US bank stocks showed a massive drop on Monday. These included San Francisco-based First Republic. On Monday, First Republic slipped 62 percent, while Western Alliance dropped 47 percent. Dallas-based Comerica slid 28 percent.

First Republic had tried to reassure investors with a statement about the strength of its liquidity but still saw the stock prices drop.

The US Treasury Department announced on Sunday that depositors in SVB and Signature would be made whole. But Moody’s said that the “rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlights risks in US banks’ asset-liability management”.

Moody's also said it was expecting the Federal Reserve to continue tightening monetary policy to reshape the trajectory for interest rate hikes.

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