Trichet calls for changes to credit ratings system
Jean-Claude Trichet, the president of the European Central Bank, has called for Europe to diversify the market for credit ratings. He said that the current ratings system, which is dominated by Fitch, Moody’s and Standard & Poor’s, exacerbated the global financial crisis.
“It is probably advisable to put an end to a global oligopoly of three agencies,” Trichet said in an interview with French paper Libération, published today (13 July).
He said that ratings agencies have tended to “amplify upward and downward swings in the financial markets”. “This runs counter to financial stability,” he said.
Trichet’s remarks coincide with a decision by Moody’s to cut Portugal’s credit rating by two notches. Moody’s said that Portugal’s financial strength “will continue to weaken over the medium term”. Portugal’s new rating is A1, five notches below the top, triple-A, rating.
The European Commission and national governments, notably France and Germany, have criticised decisions taken this year by ratings agencies to downgrade Greece, Spain and Portugal. They have accused the agencies of responding to speculation on the markets rather than examining economic fundamentals.
The Commission said last month that it would present ideas in September for reforming the ratings market, to be followed by proposals, including possibly draft legislation, by the end of the year. Ideas under consideration include empowering export credit agencies and credit insurers to issue ratings, and creating a European ratings agency.
Michel Barnier, the European commissioner for the internal market, said today that the ratings market is “far too concentrated in too few hands”.
“We want diversity, transparency and regularity on the part of the work of the ratings agencies,” he said.
Olli Rehn, the European commissioner for economic and monetary affairs, accused ratings agencies of making decisions that followed market trends. He likened his view of the work of the agencies to Winston Churchill’s view of his successor, Clement Attlee. “He [Attlee] is their leader and that’s why he has to follow them,” Rehn said.
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