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From the comments to the recent diary Nuclear Rating Agencies
Metatone:
Some level of the financial crisis can be laid into the Basel agreements that wrote ratings agencies into the process - i.e. AAA is safe for pension funds, etc.
This ECB rule is the same mistake writ large. I understand the urge to invoke an outside agency on country ratings - it helps pretend things are "not political" - but the reality is that the ratings agencies are dominated by an ideology that is in fact very political.

Alas, the Brussels-Frankfurt Consensus is just another genetic mutation of the Washington Consensus, so the ECB is quite comfortable with the political ideology of the ratings agencies...

Migeru
For definiteness, here is the definition of a rating agency in the Basel accords: (source: Bank of International Settlements, Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version Part 2: The First Pillar - Minimum Capital Requirements)

...

The observation is usually that no agency satisfies these conditions. So, national supervisors (that is, central banks) would be well in their rights to decree that the institutions they supervise are not required to use agency credit ratings to risk-weight their assets for regulatory capital purposes.



The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Mon Apr 26th, 2010 at 07:11:59 AM EST
Absent a willingness on the part of The Fed to "decree that the institutions they supervise are not required to use agency credit ratings to risk-weight their assets for regulatory capital purposes" Congress could pass legislation forbidding all reference to credit rating agency results for five years from the date of determination by the FTC that the ratings given by a given agency were not based on appropriate risk analysis and/or were influenced by market share considerations. Among other liabilities Moody's, S & P and Fitch have arguably been guilty of false advertising.

Perhaps also those companies should be required to put a black box warning at the top of each rating report:

Caution! Reliance on the statements in this product can be harmful to your portfolio and net worth.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 26th, 2010 at 12:12:25 PM EST
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