You could sense the fear over big U.S. banks just recently, as the European debt crisis heated up and concerns mounted about just how exposed banks were. Stocks tanked yet again, taking prices well below book value, and CDS spreads widened precipitously. And that got a lot of big companies worrying about the counterparty credit risks. They certainly do not want to be blindsided by a counterparty that cannot make good on derivatives obligations, as happened during the 2008 financial crisis, reports Reuters. Bank clients have become savvy about these risks. "Market participants are in disagreement over which institutions are being most actively shunned by clients. Some dealers highlighted Bank of America's recent credit rating downgrade to Baa1 by Moody's as significant, but the bank is by no means an outlier in terms of credit spreads. One head of investment banking at a major institution indicated some clients were moving away from U.S. investment banks in general, and also pointed to French banks - which saw their CDS balloon in mid-September." The ramifications of this are interesting. Just recently, Bank of America tried to shift some derivatives assets to a unit that holds insured funds, apparently at the request of counterparties. That led to some regulatory controversy, as the Federal Reserve Board applauded the move while the FDIC understandably jeered.

For more:
- here's the article