Bloomberg News

EU Weighs Credit-Ratings Bans for Nations Getting Bailouts

October 20, 2011

(Updates with Financial Times report in 10th paragraph.)

Oct. 20 (Bloomberg) -- The European Union may ban credit- ratings companies from making assessments of nations receiving European or international bailouts as part of plans for tougher regulation of the industry.

“We are actively considering suspending or banning ratings” in cases where nations are making “full efforts” to implement assistance programs, Michel Barnier, the EU’s financial services commissioner, told reporters in Brussels today. The measure may be included in a draft law that Barnier will present in November.

The EU may also force the companies to disclose the internal analyses they use when they decide to cut a government’s rating, according to Barnier, who said that he wanted to ensure “there is a clear method” behind such downgrades.

EU governments have criticized decisions by ratings companies to downgrade Greek, Irish and Portuguese sovereign debt even though the countries are receiving international assistance, saying that the decisions are unjustified and exacerbate the region’s fiscal crisis.

The European Commission said that a four-level cut of Portugal’s credit rating in July by Moody’s Investors Service added “an additional element of uncertainty” to the country’s situation.

“Based on news reports” the commission’s planned measures “appear to include allowing regulators to interfere with credit-rating agencies’ views and even forbidding CRAs to publish sovereign ratings,” Daniel Piels, a spokesman for Moody’s said in a phone interview.

Increase Volatility

“Proposals such as these will undermine investors’ confidence in European credits, disrupt access to capital markets for sovereign and corporate issuers and increase volatility in the European credit market,” Piels said.

Barnier said today the plans “are not final” and that a decision still has to be taken on them by the commission. They would then need to be approved by national governments in the EU and the European Parliament before they can take effect.

Barnier said last week the measures are likely to include ways to increase diversity in the ratings market without creating a new European ratings company.

The Financial Times reported that the EU officials are considering forcing issuers of financial products in Europe to regularly change the ratings company they use, to open up competition and avoid conflicts of interest, according to a draft of the proposal seen by the newspaper.

“The credit ratings agency engaged should not be in place for more than three years or for more than a year if it rates more than ten consecutive rated debt instruments of the issuer,” the newspaper quoted the draft as saying.

--Editors: Peter Chapman, Jones Hayden, Kevin Costelloe

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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