NEW YORK, Oct 17 (Reuters) - U.S. regional banks are

showing increasing signs of stress even after they stockpiled

more money to absorb credit losses and sought out more stable

deposits since the 2023 banking crisis, according to a

Morningstar DBRS report published on Friday.

Banks are likely to see more delinquencies and loan losses in

the coming quarters as they come under pressure from inflation,

geopolitical concerns and losses from loans to lower income

consumers, Morningstar DBRS' financial institutions credit risk

officer Michael Driscoll wrote in the report.

Banks have tapped the U.S. Federal Reserve's Standing Repo

Facility for over $15 billion since Wednesday, a sign of funding

stress, Driscoll said. Still, most regional lenders have set

aside enough reserves to absorb loan losses, he added.

"We were expecting higher losses than what we have seen at

this point of the credit cycle - the market seems to be

overreacting," Driscoll said in an interview with Reuters.

Since the failures of Silicon Valley, Signature Bank, and

First Republic in 2023, banks have worked to increase stability

in their funding, including adding more deposits that are

insured by the U.S. government.

Morningstar ( MORN ) notes Zions Bancorporation, shares of

which dropped 14% on Thursday, has 56% of its deposit base

insured by the Federal Deposit Insurance Corporation, according

to the bank's filings. Zions' shares recovered on Friday morning

and were up 3%.

While many banks have bolstered their balance sheets, shaken

confidence from investors and customers can lead to rapid

deposit outflows that exacerbate other problems.

U.S. bank stocks rebounded on Friday after strong earnings

buoyed the sector. The credit worries rippled through global

markets earlier, dragging down financial stocks in Europe and

Asia.

Fifth Third CEO Tim Spence said pressure on regional banks'

shares this week is very different from the 2023 confidence

crisis.

"I would not equate the two situations. At that time, there

were concerns about liquidity and funding mismatch, with short

term deposits funding long term loans. Now, I think investors

initially reacted to losses they did not understand well, but as

more information was released over the last 24 hours you start

to see shares recovering," he said.