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Lords slam Barnier’s rating agency plans

Thursday 21 July 2011 – by Nicola York

Senior legislators in the UK Parliament have dismissed the European Commission’s proposals for reform of the credit rating agency market.

Members of the House of Lords say internal market commissioner Michel Barnier should not go ahead with plans to set up a publicly-funded EU credit rating agency.

A report on sovereign debt ratings by the Lords’ EU economic and financial affairs sub-committee says Barnier’s proposal that ratings should be suspended for bailed-out countries is “wholly impractical and smacks of censorship”.

It slams the bid for a publicly-funded EU rating agency saying the EC should instead launch a competition inquiry into the rating agency sector.

It says: “Any publicly-funded European credit rating agency would lack credibility with the markets. Proposals to give sovereigns more advance warning of rating changes are also flawed.”

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Rating agencies have caused anger from EU policymakers when they have downgraded sovereign debt ratings of Greece, Ireland and Portugal but the committee says these downgrades “merely reflect the seriousness of the problems”.

Committee chairman Lord Harrison says: “The ratings agencies have attracted a huge amount of attention and criticism as they have downgraded the ratings of Greece, Ireland and Portugal over the past year.

“They failed to spot risks which had been building within these states long before the crisis hit. Although they were not alone in this failure it does not absolve them of responsibility.  

“The criticism they have faced, however, has largely been unjustified. The rating agencies did not precipitate the crisis, nor do we believe it is possible to say with any certainty that they exacerbated it.

“Valid concerns over their role in the 2008 financial crisis should not be allowed to colour an objective assessment of their decisions relating to the creditworthiness of some member states’ sovereign debt.”

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