The U.S. banking sector has had its fair share of troubles lately. While the stock market has rallied since the start of this year, the underlying economy is still facing the same issues from 6 months ago, and they are unlikely to go away anytime soon, especially with one of the leading credit ratings providers, Fitch, giving a stern warning.

Chris Wolfe, a ratings analyst, issued a cautionary note on the U.S. banking sector, suggesting that it could possibly face further troubles down the road. 

“We believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations“, Wolfe was quoted as saying.

Recently, Moody’s downgraded some of the smaller banks and in June, Fitch itself lowered the ratings of some of the banks. While these changes have not stirred a major storm in the industry, a further downgrade might just be enough to spook everyone.

The reason a further downgrade is so bad is because it will lower the industry’s ratings to a level way below the top players like JPMorgan (JPM:US) and Bank of America (BAC:US). This would require a downgrade of these major banks, which will further push the weakest banks close to non-investment-grade status.

Goldman Dumps $2.81M in Financial Stocks

Two weeks after the Fitch downgrade in June, Daniel Goldman sold $2.81 million worth of financial stocks. He also sits on the Oversight and Reform Committee, which oversees the health care and financial services subcommittee. Such a large sale from a member of this committee shows Goldman agrees with the Fitch analysts. And he isn’t the only one. A number of politicians have bailed out on the sector in the recent past.

Michael McCaul didn’t waste any time getting rid of $200,000 - $500,000 worth of Morgan Stanley (MS:US) stock just two days after the Fitch downgrade on 27th June. About 80% of his trades in the financial sector have been sell trades in the last 6 months.

The future of the U.S. financial sector is uncertain. And the politicians bailing out does not bode well for the sector. Having said that, a downgrade might have a domino effect and its aftershocks will be witnessed across many economies. This is nothing new for the U.S. and crises have happened in the past. The FED might have a tricky job on its hands and it will be interesting to see how they navigate through these tough times.