Moody’s downgraded 27 lenders and warned of downgrading many major banks due to rising interest rates, funding expenses, and a recession.

The system remains highly rated, but analysts acknowledge headwinds and caution against undercapitalization or underfunding.

The downgrades were due to falling bank profitability in the future quarters, and the impact of rising interest rates on consumer loans and commercial real estate.

The system’s funding strains and interest rate risk have led to challenges at certain banks.