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Banks must rely less on credit rating companies
Archived article dated Monday June 29th 2009
Commenting on today's Financial Stability Report from the Bank of England, calling for banks to reduce their dependence on external credit-rating companies and improve their own risk assessment procedures, Robin Johnson, partner at international law firm Eversheds comments:
“The role of credit agencies has without question led to a number of issues associated with the credit crisis, not least the mortgage securitisation and derivative market in the States. The ticking the box mentality on having the right AAA credit rating led to a number of investment decisions being made by discretionary funds which ultimately have cost their beneficiaries significant sums of money. “While there still is a role for credit agencies within the market, financial institutions should not be allowed to hide behind the fact that they have used external credit agencies in their decision making and instead should improve their own due diligence and risk models.“The Bank of England's report is spot on in this area and as part of any regulations that are introduced by either the FSA, Bank of England or the Treasury, the role of credit agencies within risk models needs to be specifically addressed.
“With hindsight, everyone knew the Emperor was wearing no clothes but no one was prepared to say it and in any future crisis, this cannot be allowed to be the case.”
For further information please contact robinjohnson@eversheds.com
Tagged as: eversheds | banks | boe | financial | services | consumers |
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