When I was younger, we were told to assume that the IRS curve is a AA curve because most banks were AA back then in the late 90’s. Thus Standard Chartered had to pay a premium because they were only single A.
15 years later, I say its hard to find a AA bank these days, let alone a AA country.
After the disgraceful downgrades of last week and promise of more to come, there are only 2 AA banks left in the top 10 of the world and only 1 bank that is not split rated.
Check out this table.
And we have Bloomberg ratings of the STRONGEST banks in the world which is dominated by the Canadians and dear Singapore. OCBC Bank topping the list. And the SAFEST banks in the world ranked by Global Finance.
One thing clear. The idea of global banking is a bane. Its good to be just a nice little regional outfit that is easy to regulate and relatively contagion free.
What is the use of a swap curve based on a bunch of BBB and A banks ? And do ratings really matter when credit lines are more important ? And does it matter if Moody’s downgrades the entire lot, because then everyone is in the same boat anyway ?
Maybe we should just reweigh the rating idea ?
After all, the pool of AAA countries is shrinking by the day. But that is a story for tomorrow.