Moody's Investors Service said its outlook for the U.S. banking industry remains negative, as low interest rates and tepid economic growth will continue to hurt banks' finances over the next 12 to 18 months.
The rating agency also said in a report issued Tuesday that uncertainty over a plan to reduce the federal budget deficit as well as the debt crisis in Europe create a difficult environment for U.S. banks.
Moody's has raised its credit rating outlooks for most U.S. banks to "Stable" from "Negative" since early 2010 as banks have increased their cushions against losses. But Moody's said problems in the broader economy override that, as banks still carry many loans prone to default on their books and gains could be reversed if the economy turns downward.
Moody's warning follows recent data on banks from the Federal Deposit Insurance Corp. that adds to evidence that the industry is strengthening four years after the financial crisis. But regulators, including FDIC Chairman Martin Gruenberg and Federal Reserve Chairman Ben Bernanke, warn of the potential negative impact on the U.S. economy and banks from the European debt crisis