Friday, June 22, 2012

Moody's bank credit rating downgrades highlight need for ultra transparency

A reported by the Telegraph, Moody's lowered the credit ratings on Britain's biggest banks.

This change in ratings highlights two lessons learned at the beginning of the financial crisis.

  • Ratings lag what is actually occurring; and
  • The market is still overly dependent on ratings.
Both of these lessons are addressed by requiring the banks to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details.

With this information, rating firms have no excuse for not changing their ratings on a timely basis.

With this information, market participants can independently assess the risk of the banks and as a result there is no need to rely on the rating firms.
Britain's biggest banks, including Barclays, Lloyds and the Royal Bank of Scotland, have had their credit ratings slashed by Moody's as part of a worldwide review of bank credit ratings....
In a statement, Moody's global banking managing director Greg Bauer said: "All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.".... 
However, as the review was announced in February, the impact on borrowers is likely to be muted as the downgrades were already priced in by the market.

No comments: