A Fitch Ratings analyst cautioned that the US banking industry is getting closer to another source of turmoil: the prospect of broad rating downgrades on dozens of US institutions, including JPMorgan Chase.

In June, the ratings agency reduced its evaluation of the industry’s soundness, a move that analyst Chris Wolfe said went largely unreported because it did not result in bank downgrades.

However, a further one-notch drop in the industry’s score, to A+ from AA-, would require Fitch to reconsider ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC in an exclusive interview at the firm’s New York headquarters.

“If we moved it to A+, it would re-calibrate all of our financial measures and would almost certainly result in negative rating actions,” Wolfe explained.

Bond investors’ trusted credit rating agencies have recently roiled markets with their activities. Moody’s downgraded ten small and midsized banks last week and warned that another 17 lenders, including larger institutions such as Truist and US Bank, could be next. Fitch cut the United States’ long-term credit rating earlier this month due to political turmoil and rising debt loads, a move criticized by corporate leaders like JPMorgan CEO Jamie Dimon.

Fitch is intent this time on communicating to the market that bank downgrades, while not a foregone conclusion, are a serious concern, according to Wolfe.

Because of pressure on the country’s credit rating, regulatory loopholes highlighted by March regional bank failures, and interest rate volatility, the firm’s June action reduced the industry’s “operating environment” score to AA- from AA.

Another downgrading to A+ would result in the industry’s score being lower than that of some of its top-rated lenders. In this scenario, the country’s two largest banks by assets, JPMorgan and Bank of America, would most likely be downgraded to A+ from AA-, because banks cannot be rated higher than the environment in which they operate.

According to Wolfe, if top banks like JPMorgan are downgraded, Fitch will be forced to contemplate downgrades on all of their peers’ ratings. This could push some of the weaker lenders closer to non-investment-grade classification.

Shares of lenders such as JPMorgan, Bank of America, and Citigroup fell on Tuesday as the overall market fell. The KBW Bank Index declined as well.


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