Rating Agencies Actions

Business Spectator - Rating agencies face downgrade

The EU has already moved to limit the influence of credit rating agencies and remove the excessive reliance on their opinions by financial institutions. Earlier this month the EU said it would force financial institutions to do their own due diligence on securitisation issues and not simply rely on credit ratings.

Banks that fail to do their own due diligence on securitisation issues will face heavy capital penalties. In addition, European member states are being encouraged to water down or remove rules that require banks, insurers and pension funds to use credit ratings to comply with capital or solvency requirements.

Finally some real work on the way for the financial industry. All the analysts will now have to do some real analysis of the underlying economic conditions of their business. This should bring some more quality to their work.

One of the measures is to reduce possible conflict of interests for the rating agencies. A lot of these issues were turned the blind eye to, until recently.