McCreevy puts credit rating agencies on "watch"
DUBLIN - The importance of the role of credit agencies is enhanced by the provisions of the international Basel II rules for improving bank safety, Europe's top financial regulator said in early April.
European internal market commissioner Charlie McCreevy said that he leaned on balance to the view that regulation of credit rating agencies is not appropriate at the moment.
"While we may conclude that a voluntary code of conduct will suffice for the moment, we will keep the matter under continual review," McCreevy told the annual conference in Dublin of the EU Financial Service Action Plan.
The big credit rating agencies, whose business is the assessment of the credit worthiness of the governments and companies that want to borrow money, are battling to ward off any move to impose regulation on them.
McCreevy said he was studying a report on credit rating agencies from the Committee of European Securities Regulators, or CESR. CESR is the body of stock market regulators from the European Union nations that advises the European Commission, the executive arm of the European Union, on securities markets issues.
On the other side of the Atlantic, the US Senate Banking Committee held hearings in February into the structure and operations of the rating agencies.
McCreevy said that given the oligopolistic structure of the industry and question marks raised by its performance over the past five years, "the agencies must recognise that the concerns of investors who use their services are real."
The importance of the agencies in Basel II arises from their role as external sources of credit ratings for thousands of banks using the standardised method of assessing credit risk, the simplest credit risk approach under Basel II. Banks using the more sophisticated internal ratings-based approaches use their own analysis of borrower creditworthiness to calculate the chances of a default.
"That's why the avoidance of conflicts of interests and the availability of adequate levels of expertise to carry out their important work will become even more vital," McCreevy said.
"The rating agencies put issuers on watch. I want them to realise that is they who are now on watch," he added.
