A sharp rise in interest rates by the U.S. Federal Reserve is fueling liquidity concerns as costs tied to funding deposits surge, the S&P said in a summarized note.

The agency cut its ratings on Associated Banc-Corp and Valley National Bancorp on funding risks and higher reliance on brokered deposits, while UMB Financial Corp., Comerica Bank and KeyCorp were downgraded on large deposit outflows and prevailing higher interest rates.

KeyCorp shares were down marginally in premarket trading.

The outlook of S&T Bank and River City Bank was cut to "negative" from "stable" by the S&P, citing higher CRE exposure.

The agency's action will make borrowing costlier for the ailing banking sector that is looking to shake off the effects of the crisis from earlier this year, when the collapse of Silicon Valley Bank and Signature Bank sparked a loss of confidence and led to a run on deposits at several regional lenders.

Borrowing costs globally have also surged, with the U.S. Treasury yields hitting their highest in 16 years as the bond market rout entered its sixth week on Tuesday, even as U.S. stock index futures gained, boosted by megacap growth stocks.

Moody's had earlier this month cut its ratings on 10 U.S. banks by a notch and placed six, including Bank of New York Mellon, US Bancorp, State Street and Truist Financial, on review for potential downgrades.

An analyst at Fitch, the last of the three chief rating agencies, also told CNBC last week that several U.S. banks, including JPMorgan Chase, could see downgrades if the sector's "operating environment" were to deteriorate further.