Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
The EU vs. the credit rating agencies
http://www.euinside.eu/en/analyses/the-eu-vs-the-credit-rating-agencies
After months of tension between the European Union and the credit rating agencies (CRAs), after some unambiguous threats by the agencies and sharp comments by Brussels, the European Union officially announced that it would pursue “the line of reducing the over-reliance on external credit ratings”.
In fact, there are three major credit rating agencies, which dominate the global financial market - Moody's, Standard & Poor's and Fitch. It depends on their assessment into what financial instruments investors will put their money. Moreover, since the ratings are used by regulators and financial institutions in their regulatory requirements, the power of agencies is growing enormously - to the extent to hold the financial stability of entire economies hostage.
On July 20, 2011 the European Commission proposed new rules to better regulate the banking sector, part of which is reducing dependence on external credit ratings. “We are too dependent on credit rating agencies. As a result, I wish to suppress as much as possible the reference to credit ratings in the prudential rules. This is essential for financial stability,” Commissioner Michel Barnier said. He explained that the goal is “the banks to lead their own risk analyses, without relying mechanically on credit rating agencies.” The Commission will come forward soon with a new legislative initiative, dedicated to sovereign debt ratings.
http://www.euinside.eu/en/analyses/the-eu-vs-the-credit-rating-agencies
After months of tension between the European Union and the credit rating agencies (CRAs), after some unambiguous threats by the agencies and sharp comments by Brussels, the European Union officially announced that it would pursue “the line of reducing the over-reliance on external credit ratings”.
In fact, there are three major credit rating agencies, which dominate the global financial market - Moody's, Standard & Poor's and Fitch. It depends on their assessment into what financial instruments investors will put their money. Moreover, since the ratings are used by regulators and financial institutions in their regulatory requirements, the power of agencies is growing enormously - to the extent to hold the financial stability of entire economies hostage.
On July 20, 2011 the European Commission proposed new rules to better regulate the banking sector, part of which is reducing dependence on external credit ratings. “We are too dependent on credit rating agencies. As a result, I wish to suppress as much as possible the reference to credit ratings in the prudential rules. This is essential for financial stability,” Commissioner Michel Barnier said. He explained that the goal is “the banks to lead their own risk analyses, without relying mechanically on credit rating agencies.” The Commission will come forward soon with a new legislative initiative, dedicated to sovereign debt ratings.
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