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a new reason to worry about credit ratings January 12, 2010

Posted by Bradley in : consultation , trackback

The UK Treasury, facing a lack of bank lending to UK corporates is trying to figure out how to encourage non-bank lending in a Discussion Paper published today. There’s less non-bank lending to UK corporates than to US corporates, and the paper suggests this may be linked to lower levels of rated corporates in the UK than in the US:

In seeking finance from non-bank channels, in particular the corporate bond market, a public credit rating may increase investor awareness and serve to reduce overall financing costs and risks to investors and businesses. Compared with the US, a significantly smaller proportion of UK companies are rated.

The Discussion Paper asks for data in a number of areas, including reasons why UK corporates don’t seek public credit ratings, and whether requiring more disclosure (corporate transparency) generally or with respect to loan covenants would be a good idea.

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