Devaluation of ratings

The rules of the game in the financial market are changing in the USA

Having revealed a number of violations by rating agencies after a series of scandals and investigations, the Securities and Exchange Commission (SEC) intends to allow short-term investment funds to invest in “short” debt securities without regard to ratings, and not only in securities with the maximum investment grade, as it's happening now. Thus, the influence of rating agencies on financial markets may decline sharply. As The Wall Street Journal reported, citing its sources, the SEC may announce new rules today.

As the publication writes, in addition, the commission reduces the importance of credit ratings for determining the amount of capital required from investment banks. In total, the regulator offers more than a dozen innovations. The new rules are expected to significantly change the role of credit ratings in the lives of investors and banks. The world's leading rating agencies S&P, Moody's and Fitch declined to comment on the upcoming SEC rule changes.

As you know, rating agencies have a very large influence on investors who make decisions about investing in financial instruments. In addition, the Federal Reserve System takes into account whether banks have investment grade ratings for certain types of assets. Now lenders are likely to expand the list of rating companies whose data they will rely on when making investment decisions. Previously, they used mainly data from S&P, Moody's and Fitch.

Let us note that this is not the first action by American financial authorities that undermines the authority of agencies. At the end of June, the SEC investigated rating companies to determine the extent of their involvement in the credit crisis. The agencies were accused of inflating ratings for various instruments, including subprime bonds, which ultimately caused the market collapse. As a result, the regulator proposed establishing strict rules for companies in order to prevent a repeat of the situation last year. For example, the agencies agreed to overhaul their rating systems and change the way they charge issuers for rating their securities.

And last week, the S&P agency admitted that there was an error in the system for calculating ratings on company debt obligations. Earlier, Moody's made a similar statement, repenting of assigning inflated ratings to billions of dollars of debt. Moreover, judging by Moody's documents, the company knew about the incorrect calculation of ratings from the beginning of 2007, but did not take any action to correct it.

Natalia ROMANOVA