More downgrades and stricter monitoring hurt US bank equities

U.S. bank stocks go down because of the possibility of stricter control and more downgrades.

Shares of U.S. banks fell on Tuesday because investors were worried about the sector's health because of the possibility of stricter rules and a possible downgrade of several lenders by Fitch Ratings.

In a speech on Monday, Martin Gruenberg, the head of the Federal Deposit Insurance Corporation, said that the agency planned to propose new rules to change how big regional banks make "living wills," detailed plans for closing their businesses if they failed.

After several banks failed in March, U.S. officials want to make many changes to how they watch over the banking system. These rules are part of that plan.

An analyst at Fitch Ratings said that the company could lower the ratings of several big U.S. banks; this came just a few weeks after a competitor, Moody's, cut the ratings of 10 mid-sized banks, citing funding risks and lower profits.

The S&P 500 banking index (.SPXBK) was down 2.5%, reaching its lowest point in a month. JPMorgan Chase (JPM.N) was down almost 4%. Bank of America (BAC.N), Wells Fargo (WFC.N), Goldman Sachs Group (GS.N), Citigroup (C.N.), and Morgan Stanley (MS.N) all went down between 1.7% and 2.1%.

Jack Janasiewicz, portfolio manager and lead analyst at Natixis Investment Managers, said, "We kind of knew some of this was coming, and the downgrades reflect things the market has already digested and taken into account. It just shows how people feel in general."

Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O), both mid-sized banks, were down more than 3%. On Monday, Scion Asset Management, which Michael Burry runs, said it had sold its shares in both banks. Comerica (CMA.N) and KeyCorp (KEY.N), which fell more than 4%, were also among the losers.

The benchmark 10-year U.S. Treasury yield hit a high of 4.274% on Tuesday, the highest level in almost ten months. The yield quickly declined, though, making people think that the Federal Reserve could hold rates for longer.

Quincy Krosby, chief global analyst at LPL Financial, said that bank depositors will likely watch to see if higher rates will pressure small and regional banks more.