Finance Ministers Clear Way for Credit Rating Competition in ...

At the end of a two-day gathering here, Margrethe Vestager, Denmark?s economics minister, announced that the ministers had reached an agreement to require companies to rotate ratings agencies to prevent conflicts of interest and encourage more competition.

Ms. Vestager said it would be important to make any such rules ?applicable in the real world because, you know, the market for credit rating is rather limited.?

A European law requiring companies to rotate agencies, and in turn encourage ratings competitors to enter the market, could have major implications for companies like Fitch Ratings, Moody?s Investors Service and Standard Poor?s, the big three global providers that are based in the United States and have dominated the sector.

Over the past two years, European leaders have repeatedly accused the agencies of exacerbating the sovereign debt crisis by unfairly downgrading countries? creditworthiness and further driving up their costs of borrowing.

Last year, Michel Barnier, the European commissioner responsible for financial services, proposed that companies be forced to change every three years the company that they pay to rate their credit, or every six years if they hired more than one ratings agency.

He also said that financial institutions should be allowed to rely less on the agencies and be obliged to make their own assessments.

Those rules still need to be approved by governments and the European Parliament, and Mr. Barnier?s proposals on the frequency of rotation could be modified. A longer phasing-in period for the rules could also be added.

Even so, the political support shown by the ministers on Saturday for rotation could mean that Europe will reach an agreement on a new law regulating ratings agencies in the summer.

The discussions on ratings agencies followed the finance ministers? decision on Friday to increase the size of a bailout fund for the euro zone to about $1 trillion.

That decision was overshadowed by a disagreement between the Austrian finance minister, Maria Fekter, and Jean-Claude Juncker, president of the Eurogroup of euro zone finance ministers, over who got to announce the deal first.

Mr. Juncker canceled a scheduled news conference after Ms. Fekter upstaged him with an impromptu announcement.

Ministers avoided acrimony on Saturday in a discussion about creating a so-called financial transaction tax, a proposal that has drawn fierce criticism from Sweden and Britain.

Proponents say such a mechanism could help recoup vast sums of money that governments have spent to save banks by levying a tax on most share, derivative and bond trades. But opponents warn that such a tax would push banks and other financial institutions to abandon European financial centers like the City of London and could ultimately leave European governments with less revenue.

In a sign that the governments could be preparing the path to a compromise, Anders Borg, the Swedish finance minister, said he could support a more modest levy known as a stamp duty that mainly taxes shares.

?Something in line with the French stamp duty or the British stamp duty? would be less costly for the economy and could be acceptable to Sweden and Britain, Mr. Borg said in comments on the margins of the meeting.

?There are some positive signs on this,? he said, adding that he had agreed to join a working group on the issue at the invitation of the German finance minister, Wolfgang Sch?uble.

Article source: http://www.nytimes.com/2012/04/01/business/european-finance-ministers-clear-way-for-credit-rating-competition.html

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