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cras and other market actors September 11, 2007

Posted by Bradley in : Uncategorized , trackback

Charlie Mccreevy at the European Parliament today:

I also mentioned last week the role of Credit Rating Agencies in this crisis. They have been very slow in downgrading their credit ratings, their methodology has been weak and not very well explained. They also face a potential conflict of interest; on one hand Credit Rating Agencies provide objective ratings to investors of asset backed securities, on the other they provide advice to banks on how they should structure their lending to get the best rating. The role of credit rating agencies needs to be clearer. Because moreover, their ratings are used as a basis for the calculation of banks’ regulatory capital. We need to know what rating agencies do and what they don’t. I am following up these issues with CESR as well as with our international partners. What we need are clear, robust methodological rules and principles, rigorously applied.
Other market players also need to take their responsibilities seriously. And carry out due diligence. Were firms, and the professionals they employ, constantly assessing the quality of the instruments they were buying and selling? I hope that the Boards of all financial firms will examine their actions and draw firm conclusions. We believe that a “light touch”, principle-based regulation is the best approach for the financial sector. But we need to remain vigilant and draw lessons. All parties need to take their responsibility — and take it seriously.
Finally, I would like to respond to the call for enhanced transparency, in a broad sense, which is so often heard in the debate. To improve our understanding of the mechanism at play in structured finance. To be able to better locate risks. To make certain that risks are well controlled.

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