In the midst of the seemingly ceaseless debate over the federal debt ceiling, Deputy Treasury Secretary Lawrence H. Summers has come up with a brand new worry.
"Were there to be, God forbid, a downgrade of the United States, very likely you would not see any more triple-A American banks," Mr. Summers told congressional Democrats on Tuesday.
That sounds like serious stuff. The only problem is, there aren't any more U.S. banks with pure AAA debt ratings.
To earn that accolade, a bank needs top marks from the two major rating agencies - Standard & Poor's and Moody's Investors Services. And nearly a year has passed since the last bank of that breed - Morgan Guaranty Trust Co. - was downgraded to AA1 by Moody's. (Morgan retains its AAA rating from S&P.)
Even before it slipped, Morgan was the last of the Mohicans: its sole AAA peer, Wachovia Corp., lost the rating in December 1991.
Until the early '80s, many major banks had AAA ratings, but the Third World debt crisis, which ravaged the balance sheets of banking's upper crust, took care of that.
Mr. Summers' remarks, reported by Reuters, seemed calculated to make members of Congress think through the effects of refusing to raise the federal debt ceiling by March 1, thereby throwing the government into default. But banking experts were clearly puzzled.
Perhaps Mr. Summers was just reminiscing about "American banks' historic glory," mulled Allerton G. Smith, a bank bond analyst at Donaldson, Lufkin & Jenrette.
Or maybe his subscription to Moody's has run out, speculated Ann Robinson, a bank bond analyst at Bear Stearns & Co. "Hey, wake up," she said with a laugh.
Reached Thursday at a hotel room in Switzerland, Mr. Summers defended the nub of his argument. "The only point I was trying to make was that the U.S. government's debt level would likely place a ceiling on the risk assessment of other institutions," he explained.
But asked whether he realized there are no longer any AAA-rated banks, Mr. Summers dodged. "I didn't mean to make an untrue statement," he said.
