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The European Securities Market Authority (ESMA) has initiated investigation in respect to three largest credit rating agencies - Standard & Poor’s, Fitch, and Moody’s. The regulators are interested in the way they assign ratings to European banks, many of which have recently experienced downgrade of their credit ratings. The body’s chief Steven Maijoor informed on that in the interview to Financial Times. According to him, they now want to know how reliable, precise and transparent estimation of indicators and financial results is. Bank ratings are extremely important, because there is a relation between sovereign ratings and federal bonds – he noted.
We’d like to remind that at the end of June European banks experienced a wave of ratings’ downgrade. On 22 June Moody’s downgraded ratings of 28 Spanish banks. One week before that, the agency did the same for 15 international banks (HSBC, Barclays, Royal Bank of Scotland, Societe Generale, BNP Paribas, Credit Agricole, UBS, Credit Suisse, etc. Exposure of those banks to market instability was indicated as the main reason for the decision which later caused negative reaction from several credit institutions that suffered from it.
The rating’s downgrade has negatives consequences for banks: as a result of it, they have to borrow at higher interest. This further complicates their position which isn’t easy even without that. According to Steven Maijoor, the main fact that ratings are being decreased is already a reason to have doubts in effectiveness of analytical procedures applied by rating agencies in banks.
Original source: Kommersant
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