Reading myself into basis swaps, I was wondering a couple of things. Say, one enters into a 1y - basis swap where party A agrees to pay 1M-LIBOR each month and party B agrees to pay 3M-LIBOR every quarter. As far as I understand, in an ideal environment where there is no credit risk, receiving monthly 1M-LIBOR vs receiving quarterly 3M-LIBOR are essentially the same thing? In this setting it is possible to create 3M forward from 3M and 6M LIBOR spot rates. In a world where credit risk is taken into account, this is not essentially the same thing, because 1M LIBOR and 3M Libor carry different risk.
How exactly is this difference in credit risk incorporated in the tenor spread? I would expect that, from point of view of party A that pays the 1M-LIBOR, this party would want party B to pay the 3M LIBOR + a spread to reflect that party A has more to lose. Party B is actually more sure that party A will be able to pay the monthly payments and party A wants to account for this. Is this the wrong idea?
What essentially drives this tenor basis? Furthermore, what is the relation between the tenor basis of a 1M-3M basis swap with swap maturity 1y vs 2 years vs 3 years? I just lack the feeling of how this tenor spread moves (although I red it is determined by supply and demand).