Moody’s Investors Service slashed the credit ratings of 10 small and midsize banks and warned of downgrading big banks as the sector faces uncertainty.

The downgrades and warnings were announced Tuesday and came exactly a week after Fitch announced that America’s "AAA" rating, the top rating, would be downgraded to "AA+" following this year’s debt limit fight. Moody’s said the banks would be tested this year by lower profits and funding risks.

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“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody's said in a note, adding that a mild U.S. recession is likely in early 2024 and asset quality, particularly in commercial real estate portfolios, looks set to decline.

Specifically, Moody’s said exposure to commercial real estate could get dicey because of rising interest rates, less commercial real estate credit, and continued remote work, which has driven down the demand for commercial office space in cities across the country.

In a perhaps even more concerning move, Moody’s warned about credit downgrades down the road for six of the country’s biggest banks, including giants such as Bank of New York Mellon, U.S. Bancorp, State Street, and Truist Financial. It said the warnings reflected “ongoing strain” in the banking sector.

Moody’s changed its outlook to negative for 11 other banking, including heavy hitters such as Capital One and Fifth Third Bankcorp.

“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s said.

The downgrades and warnings hearken back to just months ago when the entire banking sector and the future health of the economy were thrown into question following the sudden and dramatic collapse of regional lender Silicon Valley Bank followed by the subsequent failure of Signature Bank.

There were fears that the collapses would act as a sort of contagion and spread throughout the global banking system. While the worst was avoided in large part due to quick federal intervention, there were some ripples from SVB's failure, such as the emergency acquisition of Credit Suisse by fellow Swiss bank UBS.

Tuesday’s downgrades show that despite the SVB debacle fading into the rear-view mirror, there remain major threats and obstacles facing the banking system as the Federal Reserve begins to eye winding down its monetary tightening cycle.

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The Fed’s interest rate target has now risen to between 5.25% and 5.50%, the highest it has been since the dot-com bubble more than two decades ago.

While the odds of a recession have fallen off in a somewhat surprising way over the last couple of months (in large part due to better-than-expected inflation reports and the resilient labor market), many economists expect the United States to have a bit of a downturn later this year into early 2024.