Moody’s says the banking system, private credit markets are sound despite worries over bad loans
Despite concerns about bad loans at midsize U.S. banks, there is little evidence of a systemic problem, says a senior analyst at Moody’s Ratings.
Marc Pinto, the agency’s global head of private lending, acknowledged in an interview on CNBC’s “Squawk Box” that there are concerns about looser lending standards and some laxity in the terms institutions attach to loans.
But he said when looking at the system as a whole, contagion that could trigger a broader financial crisis was not apparent.
“When we dig deeper here and look at whether there is a reversal in the credit cycle, which is what the market is focused on, we find no evidence,” Pinto said. “That’s what we’re seeing today. That could always change. But if we look at the asset quality numbers we’ve seen over the last few quarters, we’re seeing very little deterioration.”
Bank stocks sold aggressively Thursday after Zions Bancorp and Western Alliance Bancorp disclosed that they were holding bad loans related to the bankruptcy of two auto lenders. Shares in investment bank Jefferies have tumbled this month on concerns after some exposure to bankrupt auto parts maker First Brands was revealed.
There were losses across the sector on Thursday as concerns increased that the danger could be more widespread. JPMorgan Chase CEO Jamie Dimon raised eyebrows earlier this week when he said on the bank’s earnings conference call that “when you see one cockroach, there’s probably more.”
“One cockroach doesn’t create a trend,” Pinto said.
In fact, default rates on high-yield debt have been relatively low this year, remaining below 5%, and are expected to fall below 3% in 2026, Pinto said. By comparison, defaults on high-yield debt during the 2008 financial crisis were in the low double digits.
Pinto also added that the U.S. economy is proving stronger than thought, despite persistent concerns about the weakness of the labor market and the impact President Donald Trump’s tariffs could have on inflation and consumer demand.
Pinto said he was at a conference this week for about 2,000 bankers and “one of the words I keep hearing is resilience.”
“In terms of GDP growth, we are in much better shape than a lot of people thought six months ago,” he said. “Once again, looking at credit conditions, GDP growth and the expected decline in interest rates, we think credit quality is in a pretty good place today and could potentially improve.”
Market sentiment appeared to be improving on Friday following Thursday’s sell-off.
SPDR S&P Regional Banking The exchange-traded fund, which tracks middle-market leaders, fell 6.2% on Thursday but rose 2% in premarket trading Friday.
