Adds Fifth Third CEO quote

By Tatiana Bautzer

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 notes Zions Bancorporation ZION.O, 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.

(Reporting by Tatiana Bautzer, editing by Lananh Nguyen)

((tatiana.bautzer@tr.com; Mob: +1-646-2397968; Reuters Messaging: tatiana.bautzer.thomsonreuters.com@reuters.net/))