Regulators meet to scrutinise rating agencies
By Chris Giles and Gillian Tett in London and Jeremy,Grant in Washington
Published: February 4 2008 02:00 | Last updated: February 4 2008 02:00
Financial regulators from the world's leading economies meet today in Amsterdam to thrash out ideas to address the deficiencies of credit rating agencies that have been exposed in the current financial turmoil.
The meeting, organised by the International Organisation of Securities Regulators, comes as finance ministers and central banks cast around for consensus on the right regulatory response to the continuing credit crisis.
Christopher Cox, Securities and Exchange Commission chairman, Michel Prada, who heads France's Autorité des Marchés Financiers, and others will review a 2004 Iosco code of conduct for credit rating agencies. They will also examine progress at a subprime taskforce set up by the group in November.
Some regulators have said they want the agencies quickly to draw up their own code of conduct or risk a clampdown. At the same time, watchdogs recognise there is a need for banks, including their own central banks, to be far less dependent on ratings.
One concern is whether a statutory requirement that investors only invest in certain assets if they are rated has created a disincentive for investors to carry out their own due diligence. One idea is to require investors to invest in assets that meet certain liquidity thresholds, coupled with rigorous research.
Charlie McCreevy, EU internal markets commissioner, said: "Those institutions that didn't just rely on the credit rating agencies and used their own nous seemed to have [emerged] a lot better out of this particular issue than the other institutions that seemed to rely totally on the ratings agencies."
Agencies' ratings are widely used in the Basel II banking regulations and by central banks in the assessment of acceptable collateral in liquidity operations.
A second issue being explored is the need to level the playing field between parts of the financial system that are heavily regulated, such as bank balance sheets, and non-banking activity. "Regulation needs to be more consistent in such a way that the same risk gets treated in the same way, no matter what institution is holding it," Malcolm Knight, head of the Bank for International Settlements, said.
With the financial system remaining fragile, there is great pressure for an initial regulatory response, perhaps as early as the end of this week when G7 finance ministers and central bankers meet in Tokyo. Charles Dallara, of the Institute of International Finance, the umbrella body representing the world's largest commercial banks, said: "Regulators are well aware now that there is a risk [of acting too fast] but political pressure is growing with every day that you see financial stresses moving into the economy." |
