March 7, 2021

Credit Agencies Tell Congress a Default Is Unlikely

The president of Standard Poor’s Corp. also said that deficit-reduction plans currently being considered in Congress could be sufficient to allow the United States to keep its triple-A credit rating.

But the executive, Deven Sharma, disavowed recent news reports that quoted an S.P. analyst as saying that Congress would need to achieve at least $4 trillion in deficit cuts over 10 years to maintain the country’s triple-A rating.

Mr. Sharma told a House subcommittee that the $4 trillion figure was “within the threshold” of what the agency thinks is necessary. But he declined to draw a bright line, saying only that “some of the plans” being considered on Capitol Hill could reduce the U.S. debt burden to a level that was “in the range of the threshold of a triple-A rating.”

The remarks came at a hearing by the oversight and investigations subcommittee of the House Financial Services Committee. The hearing was scheduled to examine the performance of the major credit ratings agencies following reforms that were instituted as part of the Dodd-Frank Act, but questions quickly turned to the issue of whether or not the United States would be able to meet its obligations if Congress does not raise the federal debt ceiling.

A senior national bank examiner also told the panel that they were “right to worry” about the possible unknown effects of a downgrade of the United States’ credit rating on financial institutions and the markets.

David Wilson, senior deputy comptroller and chief national bank examiner in the Office of the Comptroller of the Currency, said a downgrade of the AAA rating of the United States would mean that borrowers would have to increase the amount of margin they offered as collateral for loans.

A downgrade of the country’s credit rating would probably also be followed by lower ratings on state and local government debt, he said.

Any resulting difficulties would be “manageable in the short term” because even a downgrade to AA from the current AAA rating would still mean that Treasuries are “very high quality securities,” Mr. Wilson said. But the long-term effects of a ratings downgrade, he added, were unknown.

Asked by Brad Miller, a Democrat from North Carolina, if he were “right to worry that this could be real bad if our debt were downgraded,” Mr. Wilson replied, “You know, it’s hard to measure, but I think you’re right to worry. I mean, it could happen. It could be a big thing.”

Representatives from the Federal Reserve, the Securities and Exchange Commission and the comptroller’s office all said they believed that the credit rating agencies were doing a better job of accurately assessing risks in their credit ratings now than they were before the financial crisis.

However, said Mark Van Der Weide, senior associate director in the division of banking supervision and regulation at the Federal Reserve Board, “no matter how good they are doing,” it is important that “we not over-rely on them.”

This article has been revised to reflect the following correction:

Correction: July 27, 2011

An earlier version of this article incorrectly said that officials from two credit rating agencies said the United States was unlikely to default.

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