In a blow to an already reeling industry, Moody’s Investors Service on Monday lowered its view on the entire banking system to negative from stable.

The firm, part of the big three rating services, said it was taking the move in light of key bank failures that led regulators to intervene on Sunday with a dramatic bailout plan for depositors and other institutions affected by the crisis.

“We have changed our outlook on the US banking system from stable to negative to reflect the rapidly deteriorating operating environment following runs on deposits at Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank (SNY) and the bankruptcies of SVB and SNY,” Moody’s said in a report.

The move followed action Monday night, when Moody’s warned that it was downgrading or placing on review for downgrade seven individual institutions.

The moves are important because they could affect credit ratings and therefore borrowing costs for the sector.

In their downgrade of the entire sector, the rating agencies highlighted the extraordinary measures taken to prop up affected banks. But he said other institutions with unrealized losses or uninsured depositors could still be at risk.

The Federal Reserve established a mechanism to ensure that institutions affected by liquidity problems had access to cash. Treasury backed the program with $25 billion in funding and promised that depositors with more than $250,000 in SVB and Signature would have full access to their funds.

But Moody’s said concerns remain.

“Banks with substantial unrealized securities losses and with non-retail, uninsured US depositors may still be more sensitive to depositor competition or eventual flight, with adverse effects on funding, liquidity, earnings and capital the report said.

Bank shares rose sharply despite the downgrade. He SPDR Bank the exchange-traded fund was up nearly 6.5% in morning trading. Major indexes also rose, with the Dow Jones Industrial Average rising nearly 450 points, or 1.4%.

Moody’s downgraded Signature Bank on Monday and said it would remove all ratings. It placed the following institutions under review for possible downgrades: First Republic, INTRUST Financial, UMB, Zions Bancorp, Western Alliance and Comerica.

The firm noted that a prolonged period of low rates combined with pandemic-related fiscal and monetary stimulus have complicated banking operations.

SVB, for example, found itself with some $16 billion in unrealized losses on the long-term Treasuries it held. As yields rose, it eroded the principal value of those bonds and created liquidity problems for the bank, long a darling of high-flying tech investors who couldn’t get financing at traditional institutions. SVB had to sell those bonds at a loss to meet its obligations.

Rates rose as the Federal Reserve battled a surge in inflation that pushed prices to their highest levels in more than 40 years. Moody’s said it expects the Fed to continue to hike.

«We expect pressures to persist and be exacerbated by the ongoing monetary policy tightening, with interest rates likely to remain high for longer until inflation returns to the Fed’s target range,» Moody’s said. “U.S. banks are also now facing sharply rising deposit costs after years of low funding costs, which will reduce profits for banks, particularly those with a higher proportion of fixed-rate assets.”

The firm said it expects the US economy to slip into recession later this year, putting further pressure on the industry.