BOE’S Tucker Seeks Less Regulatory Dependence on Rating Agencies

September 27, 2011 by · Leave a Comment
Filed under: International, The Rating Agencies 

Paul Tucker, Deputy Governor Financial Stability at the Bank of England, expressed the opinion that it is a “great mistake” for regulators to require rating agency assessments in their rules.

Speaking in London to the International Council of Securities Associations reports him saying, “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.”

He continued to say, “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?”

Hoory. Leave it to the Brits to say it straight. If you can’t figure out what a security is worth (with or without a rating), you shouldn’t be in the investment business.

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