Analysis

Should Regulations Be Tightened on International Credit Rating Agencies?
(THOMAS COEX/AFP/Getty Images)
March 13, 2012
| Economics
| Europe
Summary
The enormous influence over the international economy of the three leading agencies that grade corporate and sovereign debt — Standard and Poors (S&P), Moody’s, and Fitch — has long been controversial and has led to calls for international regulations, especially during hard economic times. Due to the current European economic debt crisis, the European Union is considering new measures to tightly regulate these agencies, limit their independence, and require a rotational scheme where companies would be forced to change their rating agencies regularly. Could these new regulations do more harm than good to the world economy?

On March 7, DBRS, a Canadian Credit Rating Agency, expressed support for new proposals by Michel Barnier, the European Commission (EC) Internal Market and Services Commissioner, to regulate international credit agencies.  According to the Financial Times, DBRS believes forcing companies to change rating agencies frequently would increase competition and prevent “group think.”  Barnier hopes to improve upon other regulations introduced in 2010 that some EU states believe have been ineffective.

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