What happened

The stock market was having a generally negative day on Tuesday, with all three major market indexes down by approximately 1% as of 12:30 p.m. ET. However, many bank stocks were being hit especially hard, especially in the regional banking space. Truist Financial (TFC 0.53%) and regional lender KeyCorp (KEY 0.62%) were down by more than 3% and large regional bank U.S. Bancorp (USB 0.32%) was lower by about 2%. All three were down by more than 5% earlier in the trading day, and dozens of other prominent bank stocks were seeing similar declines.

So what

First, there is no company-specific news causing the stock price action at these, or most other banks.

Instead, the pressure we're seeing on bank stocks today is due to several ratings actions taken by ratings agency Moody's on midsize United States banks. The agency downgraded the credit ratings and/or changed outlooks of more than a dozen financial institutions and placed five others under review for potential downgrades.

To be clear, none of the three banks mentioned earlier received a ratings downgrade on Tuesday, but both Truist and U.S. Bancorp were on the list of banks under review for possible downgrades. KeyCorp wasn't on either list, but has been a very closely watched bank since the turbulence in the industry earlier this year.

If you're curious, some of the more prominent banks that actually received downgrades include Regions Financial, whose outlook was changed to negative from stable, and BOK Financial, whose credit rating was downgraded from A3 to Baa1.

Now what

These actions all by themselves don't have a direct impact on any bank's business. But the general rationale for the moves is that these banks could be especially susceptible to funding issues and declining profits due to ongoing economic uncertainty.

In a research note, Moody's analysts pointed out how the high-rate environment is draining banking deposits as people look for higher-rate options, and the lower fair value of fixed-rate investments on banking balance sheets. Moody's warned that many banks with lots of unrealized losses might be especially vulnerable to declining consumer confidence (which typically accompanies a recession). With a recession expected in early 2024, there are concerns that asset quality will decline -- especially when it comes to commercial real estate loans.