EU Takes Page From U.S. Playbook, Re: Credit Ratings Agencies

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Fact: The Big Three perhaps maybe haven't done the best job rating bonds, sovereign or otherwise.

Fact: Powerful governmental bodies aren't especially happy with some of those ratings, even if they were indisputably right.

Conclusion: Kick'em while they are down.

The Paris-based European Securities and Markets Authority, or ESMA, warned of a series of "actual failings or potential risks" that it said might harm the independence and accuracy of the three big agencies.

It also pointed to failings in the way the agencies handled confidential information on sovereign ratings, including the disclosure of imminent rating decisions to third parties, and highlighted "significant and frequent delays" in the publication of ratings….

In a conference call Monday, ESMA Chairman Steven Maijoor said that possible sanctions could include "a public notice or a fine, or withdrawing a license." He didn't say when a decision on whether to impose such sanctions would be made….
The three U.S.-based rating firms were sharply criticized by some euro-zone officials over the timing of their decisions to downgrade European sovereign debt—such as Standard & Poor's decision in 2011 to cut Greece's sovereign debt rating while the country was renegotiating its international bailout.

On this side of the Atlantic, we've decided that being bad at your job or producing fraudulent ratings to win more business isn't something to get too worked up about unless you downgrade our sovereign debt. Then, fuck you. And, while we're at it, fuck the banks, too.

Regulators have spent the past five years trying to siphon risk out of the financial system, but the Federal Reserve sees one major piece of unfinished business: short-term funding….

Fed officials have discussed a two-pronged approach to make short-term-funding markets more stable. One prong would target large financial firms, forcing them to hold more loss-absorbing capital if they rely heavily on short-term loans. Another would require that all borrowers in the markets pay a sort of tax by posting minimum amounts of collateral, which could make lenders less prone to panic during periods of market stress.

EU Threatens Action Against Big Three Ratings Firms [WSJ]
Fed Eyes Financial System's Weak Link [WSJ]

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