Credit ratings for the main arteries of the U.S. financial system -- the Depository Trust Co, National Securities Clearing Corp, Fixed Income Clearing Corp and the Options Clearing Corp -- were cut one notch to AA-plus by Standard & Poor's Ratings Services Monday.
These institutions, previously rated AAA by S&P, clear and process trades and are crucial to the daily workings of the U.S. financial markets.
S&P in a statement said the downgrades were due to its lowering of the U.S. sovereign credit rating late on Friday, a decision that is prompting the credit agency to review and in some cases slice the ratings of a host of entities whose financial health depends heavily on the federal government.
The credit agency -- the only one to cut the U.S. credit rating from the highest rank -- said that its lowering of the country's credit rating ``constrains'' the depository and clearing houses because ``their respective businesses and the assets they hold are concentrated in the domestic market.''
Explaining that the downgrades were not the result of any company-specific event, S&P said:
``We have not changed our view of the fundamental soundness of their depository or clearing operations.''
S&P said its decisions were based on what it called shifts in the macroeconomic environment and the long-term stability of U.S. capital markets. The U.S. stock market fell in the first day of trading after S&P's historic downgrade of the United States, while Treasuries rallied.
S&P gave the four depository and clearing institutions negative outlooks.
The U.S. municipal market within a few hours should get more guidance from S&P on how it will handle the ratings of states and municipalities. The credit agency now rates 13 states at AAA.
S&P is looking at the impact of the country's debt consolidation plan agreed on Aug. 2 on the budgets of states and municipalities, David Beers, the head of the agency's sovereign ratings group, said on Monday.
As expected, the downgrading of the U.S. credit prompted S&P to cut by one notch to AA-plus the ratings of Fannie Mae and Freddie Mac , the two government-sponsored enterprises that are central to the U.S. residential mortgage market. The Federal Home Loan Banks were also cut to AA-plus.
There is little doubt that S&P will downgrade the six insurers it still rates AAA, including the military-focused insurer USAA and the teacher-centric TIAA. New York Life, one of the six, told Reuters last month it had been told by S&P it could not have a higher credit rating than its sovereign.
Even so, the downgrade is unlikely to affect the six in any substantial way, just as the government's lower credit rating is unlikely to hurt the insurance industry in general.
``There is no impact on insurer investments in U.S. government and government-related securities from the actions recently taken by the rating agencies,'' said Susan Voss, president of the National Association of Insurance Commissioners, in a statement on the NAIC website.
``Risk-based capital and asset valuation reserves are unaffected.''