Governments, which have been criticizing credit-rating companies over sovereign-debt downgrades, should start a competing firm, according to Moody’s Corp. Chief Executive Officer Ray McDaniel.
“Public institutions that have both the expertise and credibility among market participants should provide credit views on sovereigns,” McDaniel wrote Thursday in a paper called “A Solution for the Credit Rating Agency Debate” that was posted on the New York-based company’s website.
European lawmakers have blamed Moody’s, Standard & Poor’s and Fitch Ratings for complicating efforts to resolve the region’s debt crisis by cutting countries’ ratings, leading the European Union to adopt tougher regulations. While some have considered prohibiting the companies from publishing their opinions, that won’t stop investors from speculating on creditworthiness, McDaniel said.
“Rather than stifle those opinions, policy makers could neutralize private-sector credit rating opinions by introducing a public-sector voice to contribute competing views,” he said.
To be credible, the new firm would have to be independent from governments, have “analytical expertise” and disseminate its opinions broadly, McDaniel said.
“Given the number of public institutions that already exist that function along these lines, and that have a record for independence and credibility, establishing such a body is a matter of political will,” McDaniel said.
Governments also should stop using ratings in regulations, which adds to the perception that the companies are too powerful, said McDaniel, who’s led Moody’s since 2005. The paper follows a speech that he gave yesterday to the American European Community Association in Brussels, said Michael Adler, a spokesman for Moody’s.
The EU’s top markets regulator said today that Moody’s, S&P and Fitch must be more transparent. The companies registered with the European Securities and Markets Authority for the first time in October. The regulator said it hasn’t decided whether the “shortcomings” constitute a breach of EU law.
Last month, Leonardo Domenici, a member of the European Parliament, called for a ban on ratings of sovereign debt that haven’t been approved by the country involved. Michel Barnier, the EU’s financial services chief, said that creating a public EU credit-ratings company would be a “costly matter.”
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