Modern urban skyscrapers in downtown Chicago from below to the blue summer sky. Sun reflecting in the glass facades of the urban futuristic buildings. Chicago, Illinois, USA

While U.S. regulators may have averted a crisis with emergency action to shore up confidence in the banking sector, the pressures of tighter financing conditions remain, leaving banks vulnerable.

In a new report, Fitch Ratings said the emergency actions by the U.S. Federal Reserve Board and the FDIC following the failure of a couple of banks will support the liquidity of the U.S. banking system and reduce the risk of banks having to crystallize unrealized losses on their securities portfolios.

“However, it remains to be seen whether these measures will be sufficient to stabilize investor and depositor confidence in other vulnerable institutions or whether additional measures will be needed,” it said.

Fitch noted that it’s continuing to monitor the evolving funding and liquidity environment for U.S. banks amid concerns that it outlined before the recent bank failures.

The rating agency previously cautioned that “funding and liquidity will be a challenge for U.S. banks given expectations for a sustained period of higher rates coupled with large unrealized losses on bond portfolios which could limit funding flexibility. Moreover, quantitative tightening will cause industry deposits to shrink from pandemic highs, further pressuring bank funding and liquidity profiles.”

In a separate report, Moody’s Investors Service said that while Silicon Valley Bank and Signature Bank were unique given their particular focus on crypto, venture capital and private equity, “it is increasingly evident that other U.S. banks are also facing [asset liability mismatch] strains.”

Moody’s has also warned that rising rates and quantitative tightening are pressuring bank deposits and liquidity. Additionally, some banks have demonstrated weak governance and oversight of liability mismatch risks, it noted.

“Despite official sector actions to address deposit runs, we believe that significantly higher interest rates will continue to weigh on some U.S. banks’ profitability and economic capital,” Moody’s warned.

The regulators’ emergency actions guard against further bank runs, it said, but they don’t alleviate “banks’ vulnerability to excessive interest rate risk, which was the root cause of these banks’ distress.”

Additionally, bondholders and shareholders “will still need to absorb the economic losses some banks face related to higher interest rates as well as credit losses that are likely to rise with the coming turn in the economic cycle,” Moody’s said. It added that banks may also have difficulty raising fresh equity and generating capital internally in the current environment.

As a result, Moody’s has downgraded its outlook for the U.S. banking system to negative from stable as it assesses “the ongoing impact of higher interest rates for longer on the funding, profitability and capital of a select group of banks.”

In another report, Moody’s said the turmoil in the U.S. bank sector will have limited impact on most banks and insurers in the Asia-Pacific region, but that asset managers and securities firms could be affected.

Specifically, it noted that securities firms and asset managers “can be vulnerable because they rely on wholesale funding for liquidity and hold relatively large amounts of mark-to-market securities.”

Additionally, to the extent that clients of securities firms “face any liquidity stress” due to their U.S. dealings, then securities firms themselves could be indirectly affected too, it said.