S&P Global Ratings has cast a spotlight on the challenges faced by several U.S. regional banks, resulting in a series of downgrades that have reverberated through the financial sector.

According to the agency, the Federal Reserve's tight grip on monetary policy is now putting a strain on many U.S. banks' funding, liquidity, and revenue.

The firm lowered ratings on $Associated Banc (ASB.US)$, $Comerica (CMA.US)$, $KeyCorp (KEY.US)$, $UMB Financial (UMBF.US)$, and $Valley National Bancorp (VLY.US)$ from positive to stable.

The firm lowered $S&T Bancorp (STBA.US)$ outlooks to negative while maintaining their ratings, and kept the negative outlook on $Zions Bancorp (ZION.US)$.

Moody's took similar action earlier this month when it downgraded 10 U.S. banks and placed six on review for prospective downgrades, including $Bank of New York Mellon (BK.US)$ $U.S. Bancorp (USB.US)$, $State Street (STT.US)$, and $Truist Financial (TFC.US)$.

The impact of higher interest rates on borrowers is becoming evident through rising nonperforming assets, delinquencies, and charge-offs, approaching historical averages, according to S&P Global Ratings.

The report also suggests that banks with significant exposure to commercial real estate, especially office loans, could face the most significant strains on asset quality.

S&P Global Ratings estimates that FDIC-insured banks collectively held more than $550 billion in unrealized losses on available-for-sale and held-to-maturity securities as of June 30, 2023.