THE HEAD of Moody’s in Europe has fired a broadside at the European Commission for proposing measures that pin the blame on ratings agencies for the euro debt crisis.
Speaking to City A.M., senior managing director Frédéric Drevon said: “The proposals appear completely excessive and not proportionate… There is an element here of shooting the messenger.”
Most controversial among the new rules expected to be unveiled today is the suggestion that regulators should be able to ban ratings agencies from rating sovereigns in certain circumstances, such as when they have been forced to seek a bailout.
Another proposal is that agencies should have to submit their methodologies to the European Securities and Markets Authority (ESMA) for vetting.
“Investors will feel that there is a loss of market integrity here. One of the core building principles of ratings agencies is their independence,” Drevon said.
“The sovereign crisis will not disappear because agencies are regulated in this specific way… It is instead likely to be a very counter-productive measure as the mere announcement that a rating is being withdrawn will signal to investors that regulator has intervened and is attempting to keep information away from the market.”
He added that the European Commission has radically altered its direction of travel since first embarking upon the reforms, from reducing regulatory reliance on ratings – which Drevon says Moody’s would support – to “curtailing… freedom of opinion and speech”.
Meanwhile, Moody’s released a note yesterday suggesting that the designation of 29 banks as “global systemically important financial institutions” boosts their credit rating because the agency still believes they are “too big to fail” and will be bailed out in the event of a collapse, despite regulators’ attempts to introduce orderly wind-down regimes.
The agency also put Credit Suisse on review for a downgrade, which it said was due to its recent worse-than-expected results.