–BOE Tucker Urges Regulators, Markets To Stop Relying On Credit Ratings

LONDON (MNI) – The Bank of England’s top financial stability
official launched a stinging attack on regulators’ and markets’ over-
reliance on credit rating agencies’ ratings Monday.

Paul Tucker, Deputy Governor, Financial Stability at the Bank of
England, termed it a “great mistake” for regulators to use ratings in
their regulatory regimes. He called for a “great effort of will” from
markets and regulators to kick their habit of relying on the rating
agencies.

The rating agencies came under fierce attack for their role in the
credit crunch in giving top notch rating to various financial
instruments that eventually proved illiquid.

Since then the credit rating agencies have returned to centre
stage, with the endless citing of their sovereign and other ratings, but
Tucker made crystal clear he wants to bring their dominance to an end.

“It is important to reduce the significance of CRA (credit rating
agencies’) ratings in our capital markets,” he said.

“Pervasive mechanistic reliance on ratings is by no means mainly
the fault of the Rating Agencies themselves or of financial firms,
although many of the latter have acted – and probably continue to act –
foolishly. The extent to which ratings have been bolted into regulatory
regimes – by securities regulators and prudential supervisors – has
plainly been a great mistake,” Tucker said.

“It is one of those mistakes whose effects have become so woven
into the fabric of ‘modern’ finance that it is going to take an
extraordinary act of will (and patience) to undo it, he said.

“Yes, we do have asset managers (and banks) who might not be able
to evaluate some securities on their own if they were not permitted, by
official regimes, to rely on CRA ratings. But what on earth are we doing
not only tolerating but effectively encouraging a financial system in
which asset managers and banks can’t always understand their
portfolios?” he said.

–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com

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