Government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac pose a far greater risk to the U.S. government’s credit rating than the possibility that it could decide to bail out more brokerage firms, says Standard & Poor’s.

“While the Bear Stearns sale brought into focus the potential risks associated with supporting the broker-dealer segment of the U.S. financial system, the possible need to provide financial support to government-sponsored enterprises poses a far greater fiscal risk to the ‘AAA’ rating on the U.S. government,” the rating agency says.

S&P points out that in a deep and prolonged recession, the maximum potential cost of assisting the broker-dealer sector remains small, amounting to less than 3% of GDP. However, an equivalent measure for GSEs, together with loans and guarantees extended by explicitly-guaranteed U.S. government agencies, yields a potential fiscal cost to the government of up to 10% of GDP.

“Standard & Poor’s does not predict a deep recession,” stressed John Chambers, chairman of Standard & Poor’s sovereign rating committee. “We examine these potential costs to come to relative judgments between actual debt stocks and potential debt stocks, and between one government and another.”

“Even under a severe stress scenario, the contingent fiscal risks of broker dealers will not threaten the ‘AAA’ rating on the U.S. government. However, under such a scenario, the size of GSEs, coupled with their current level of common equity, could create a material fiscal burden to the government that would lead to downward pressure on its rating,” Chambers added.

“The mortgage GSEs face heightened demand to provide mortgage financing, which comes at a time when their need to raise capital and improve earnings has placed them under extreme pressure against the backdrop of historically weak housing markets and seized securitization markets,” notes Standard & Poor’s credit analyst Victoria Wagner. “We expect the mortgage GSEs to raise substantial amounts of equity to meet their capital adequacy needs. We will be looking closely at their forthcoming plans to shore up their common equity base as they attempt to preserve the ‘AA-’ rating and limit the risk they present to the ‘AAA’ rating on the U.S government.”