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EU Prepares Law To End Influence Of Rating Agencies, Tells Banks To Police Themselves

Tyler Durden's picture




 

The schizophrenic EU once again confirms it has forgotten to take its daily dose of Geodon. Reuters reports that banks in the European Union face curbs on how much they can depend on ratings from credit agencies to calculate the size of their capital safety cushions. Michel Barnier, the EU's financial services chief, said he will make the proposals as part of his reform to bring EU bank capital requirements in line with a global accord known as Basel III that will increase the size of capital buffers. "To limit overreliance, we will be strengthening the requirement for banks to carry out their own analysis of risk and not rely on external ratings in an automatic and mechanical way... We will also make other concrete proposals before the end of the year to limit over-reliance to deal with insurance, asset management and investment fund sectors," Barnier also told the European Securities and Markets Authority (ESMA). Translation: banks will be told to .... police themselves. As for the basis of this move, it is all too clear: remove the influence of the ratings agencies on the fact that the European ponzi is unravelling faster than Lady Gaga's costume at next year's VMA. But wait, what about that AAA rating on the "CDO at the heart of the Eurozone." Oh, well, since that's an AAA, they are fine with that. Of course, if the CRA's say enough, and actually slap a rating that is truly appropriate with this reverse synthetic debt contraption, it's game over.

More:

The draft law is due to be published on July 20.

Peter De Proft, director general of the European Fund and Asset Management Association (EFAMA), told Reuters many investment firms already do their own credit analysis. "It will be more difficult for the smaller ones," De Proft said.

Moody's angered the EU this month by downgrading Portuguese debt despite the country securing an EU bailout.

Barnier said the "absolute minimum" must be to improve transparency in how agencies reach such decisions.

"That is why we should ask ourselves ... whether it is appropriate to allow sovereign ratings on countries which are subject to an internationally agreed programme," Barnier said.

Such a ban will be discussed by EU finance ministers shortly, he added.

Sharon Bowles, the UK Liberal chairman of the European Parliament's economic affairs committee, cautioned against seeing ratings agencies as the "fount of all evil" in the euro zone's debt crisis.

"I just think they are being shot as the bringer of bad news during the sovereign debt crisis. I am not entirely convinced the system is broken," Bowles told the ESMA meeting.

The continued zero-weighting of all sovereign debt when it comes to calculating bank capital has played a much more damaging role in the crisis by not allowing markets to discipline weaker debt, Bowles said.

Complete. Unmitigated. Idiotic. Lunacy. Luckily for Europe, China is still out there lifting the barrage of EUR offers with its excess trade surplus and trillions in FX reserves.

Alas, even that will soon run out.

 

 

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Mon, 07/11/2011 - 10:10 | 1443466 Translational Lift
Translational Lift's picture
EU Prepares Law To End Influence Of Rating Agencies, Tells Banks To Police Themselves

 

HAHAHAHAHAHAHA............The end is near!!!

Mon, 07/11/2011 - 11:30 | 1444000 IQ 145
IQ 145's picture

 I like your screen name; it's one of those engineering phrases that brings your reading of the textbook to slow crawl while you try figure out exactly wtf they're talking about. The name of the thing itself has always delighted me also, "rotating wing aircraft"/ yeah, great. The craziness is built in. I committed aviation many times and lived to tell about it but only in "real aircraft" that have those wonderful strong metal wings you can see out the window that hold my poor fragile white ass up.

Mon, 07/11/2011 - 12:01 | 1444153 Panafrican Funk...
Panafrican Funktron Robot's picture

Wonders aloud whether this will include Dagong.

Mon, 07/11/2011 - 12:10 | 1444186 Quaderratic Probing
Quaderratic Probing's picture

The Emperor has banned mirror stores........

Mon, 07/11/2011 - 10:08 | 1443467 the not so migh...
the not so mighty maximiza's picture

Things must be pretty bad.

Mon, 07/11/2011 - 10:30 | 1443593 Sudden Debt
Sudden Debt's picture

it's just preemptive...

Just look at those euro coins! They look like gold coins!

 

We've got all sorts!

We've got the Greece eurocoins where rates are at 20%

Italian where rates are at 12%

and German once... they aren't worht that much because the rates are pretty low on those....

BUT THEY ARE VALID IN THE UNITED STATES OF EUROPE! or make that the "union"....

Mon, 07/11/2011 - 10:08 | 1443468 A Man without Q...
A Man without Qualities's picture

What's this - the idiots guide to starting a bank run?  

Mon, 07/11/2011 - 10:33 | 1443610 IQ 145
IQ 145's picture

 LOL. That's clever. There's a book called "the tradgedy of the Euro"; that explains the genesis of the common currency and the mechanisms of it's European Central Bank, (some missing, and some non-functional); what we have already seen is that their very brave and strict rules that gave wealthy investors confidence in them have been thrown out and now they just react to crises, and "print to order"; and yes, it doesn't seem like a very confidence inspiring anouncement. 

Mon, 07/11/2011 - 10:08 | 1443469 williambanzai7
williambanzai7's picture

Who has the copy right on AAA?

Mon, 07/11/2011 - 10:10 | 1443484 Jim in MN
Jim in MN's picture

The American Automobile Association?

Mon, 07/11/2011 - 10:16 | 1443510 the not so migh...
the not so mighty maximiza's picture

American Avalanche Association?

Mon, 07/11/2011 - 10:23 | 1443543 Jim in MN
Jim in MN's picture

A-1 Apocalypse Assayers?

Mon, 07/11/2011 - 10:24 | 1443549 Cassandra Syndrome
Cassandra Syndrome's picture

American Alcoholics Association?

Mon, 07/11/2011 - 10:28 | 1443576 Cone of Uncertainty
Cone of Uncertainty's picture

Asshat Association of America

Mon, 07/11/2011 - 10:37 | 1443624 IQ 145
IQ 145's picture

There was a rumor once that "Moodys" had a big rubber stamp that said AAA on it and they just flipped through piles of proposals and bonds, and stamped everything within reach; the desk, the telephone, the back of their hand, etc. It would make a nice cartoon video, I think.

Mon, 07/11/2011 - 13:33 | 1444513 macholatte
macholatte's picture

 

suggestion: just change the faces and it's deja vu all over again

http://www.time.com/time/covers/0,16641,19990215,00.html

Mon, 07/11/2011 - 10:08 | 1443471 NoRestForTheWicked
NoRestForTheWicked's picture

EU needs to go easy on the ouzo.

Mon, 07/11/2011 - 10:28 | 1443474 MsCreant
MsCreant's picture

Lawyer up bitches! We got contracts to rewrite. 

Edit: Isn't this the criteria that many contracts use to help determine if a the collateral is no good anymore and the loan needs to be called in? I'm pissed if I am holding one of those contracts.

Mon, 07/11/2011 - 10:45 | 1443668 IQ 145
IQ 145's picture

 Yes, it has a "quasi-legal" status. your retirement fund, or whatever, may be prohibited from owning things that didn't get the AAA stamp. In the case of the Banks it's like the American "well, just mark the value to whatevah"/ with reference to the "capital reserves" that the bank holds. The ECB anounced a while ago that would buy Greek Bonds, "no-matter what they were rated"; basically admitting defeat in this attempt to do the impossible. The Euro was engineered by a couple of French Socialists in order to avoid the ongoing embarrassment of French Franc devaluations in the face of the relatively more stable Deutschmark; it worked fine for its intended purpose, printing as much money units as "necessary" for the various social services; the problem is that it's intended purpose was bullshit; and that is now coming home to roost.

Mon, 07/11/2011 - 10:09 | 1443475 Deepskyy
Deepskyy's picture

Just... wow.  This is so moronic that I'm having trouble finding the right bitingly sardonic quip to respond with. 

 

Mon, 07/11/2011 - 10:09 | 1443477 Paralympic Equity
Paralympic Equity's picture

Is today the 1st of April? Am I missing something?

Mon, 07/11/2011 - 10:09 | 1443478 Jim in MN
Jim in MN's picture

We need more discussion of when it becomes impossible for US funds to hold European assets. No investment-grade rating = no investment, in many quarters of the market.

Someone sneak a question in to PIMCO on this.  Or CALPERS.  Or Vanguard.

Mon, 07/11/2011 - 10:13 | 1443481 TruthInSunshine
TruthInSunshine's picture

When all you possess is a hammer, every problem looks like a nail.

 

Barnier may want to reconsider his statements, also. Shooting messengers publicly does little to shore up what little CONfidence remains.

*Even if some of the messengers (Fitch, Moody's) are wholly and entirely incompetent/criminal.

Mon, 07/11/2011 - 10:10 | 1443482 Caviar Emptor
Caviar Emptor's picture

Gloves are coming off

Mon, 07/11/2011 - 10:10 | 1443483 oogs66
oogs66's picture

this is a healthy sign - NOT!  I'm not even sure you get a pop on in the market on this news before banks sell off.  I hate the rating agencies, and think that the regulators have relied on them too much, but a knee jerk reaction like this smells of desperation.

Mon, 07/11/2011 - 10:11 | 1443487 metastar
metastar's picture

More extend and pretend. Allows banks to turn junk into gold. Its the Midas touch!

Mon, 07/11/2011 - 10:12 | 1443493 Caviar Emptor
Caviar Emptor's picture

Flash: My own rating agency has upgraded my performance

Mon, 07/11/2011 - 10:15 | 1443505 TruthInSunshine
TruthInSunshine's picture

I just told a client dealing with a bank on a commercial workout to tell them that he is rejecting their version of reality regarding his fiscal soundness, and replacing it with his own.

I do hope this ploy works and/or buys him more time.

Mon, 07/11/2011 - 10:17 | 1443513 wandstrasse
wandstrasse's picture

am I right, now your own central bank can print some more yummy money for you!!

Mon, 07/11/2011 - 10:12 | 1443494 Me XMan
Me XMan's picture

HAHAHAHAHAA!

Mon, 07/11/2011 - 10:14 | 1443497 aVian
aVian's picture

freaking priceless...hope you got gold or silver

Mon, 07/11/2011 - 10:20 | 1443527 Central Wanker
Central Wanker's picture

Nope. Gold has been rated Junk by the EU.

Mon, 07/11/2011 - 10:14 | 1443498 johngaltfla
johngaltfla's picture

GOOD IDEA! Should have let WaMu regulate themselves too!

 

Ooops. We did. That didn't work either....

Mon, 07/11/2011 - 10:43 | 1443659 riley martini
riley martini's picture

  Ha! WaMu had a AAA rating bougyt and paid  for with share holder  money . Other AAA frauds Fannie Freddie.

Mon, 07/11/2011 - 10:14 | 1443500 averagejoe
averagejoe's picture

Desperate re-arranging of the deck chairs on the Titanic.

Mon, 07/11/2011 - 10:17 | 1443516 Catullus
Catullus's picture

You may only price risk based on what we tell you to price that risk.

Of course gold has no counterparty, so holding on it as your reserves is not subject to this decree. Just a thought.

Mon, 07/11/2011 - 10:17 | 1443518 carlo
carlo's picture

 "the European ponzi is unravelling faster than Lady Gaga's costume at next year's VMA" ....lol

Mon, 07/11/2011 - 10:18 | 1443519 MsCreant
MsCreant's picture

Remember when they changed the US Bank regs so that they marked their assets to model, instead of marking them to market? That was balls to the wall outrageous and no one did anything about it. This is just as outrageous, will anyone do anything about this? I bet not.

Accounting Gimmikz...

Mon, 07/11/2011 - 10:53 | 1443717 IQ 145
IQ 145's picture

 Yes, It seems to be kind of a trans-atlantic infection of the same disease. I would say, that some people did do something about it; they lowered their expectations for, and their confidence in, the banking/financial sector and changed their savings into Gold and Silver; and this process will probably be ongoing.

Mon, 07/11/2011 - 10:18 | 1443520 wandstrasse
wandstrasse's picture

as I already posted, according to the EU constitution, sovereign default is FORBIDDEN. They just comply with legislation, I do not know what this fuzz is about.

Mon, 07/11/2011 - 11:00 | 1443774 IQ 145
IQ 145's picture

 Yes. Well, sovereign default is not necessary to wreck a Fiat monetary system. a.), and b.) changing the rules for your banks is not good for confidence, or public opinion. Well, not perhaps public opinion, but let's say the opinion of the wealthy. c.) these kinds of accomodation usually inflationary. 

Mon, 07/11/2011 - 10:19 | 1443524 camoes
camoes's picture

Shoot the messenger! Oops, just shot my foot instead, I'm bleeding...help ECB plz help me...what a world, what a world....

Tue, 07/12/2011 - 09:31 | 1447435 Urban Redneck
Urban Redneck's picture

Glocks will do that

Mon, 07/11/2011 - 10:19 | 1443525 ZackAttack
ZackAttack's picture

Instead of focusing on the problem, they marginalize those who merely point out the problem.

It's not like the ratings agencies are actually any good at that, even.

 

Mon, 07/11/2011 - 10:21 | 1443532 Vergeltung
Vergeltung's picture

the emperor has no clothes!!

Mon, 07/11/2011 - 10:26 | 1443562 wandstrasse
wandstrasse's picture

he still has clothes on, but they are cheap and ugly.

Mon, 07/11/2011 - 10:37 | 1443622 TruthInSunshine
TruthInSunshine's picture

And made in Bangladesh or Sri Lanka (no offense whatsoever to Bangladeshans or Sri Lankans; just pointing out the irony of what would be - you know - sweat shop made clothing for the emperor and such).

Mon, 07/11/2011 - 10:21 | 1443533 alien-IQ
alien-IQ's picture

Banks policing themselves...what can possibly go wrong with that?

Mon, 07/11/2011 - 10:22 | 1443538 Silverhog
Silverhog's picture

Calling all Bozo's. This is beyond hilarious.

Mon, 07/11/2011 - 10:23 | 1443541 sudzee
sudzee's picture

The US will follow suit shortly.

Mon, 07/11/2011 - 10:23 | 1443545 spanish inquisition
spanish inquisition's picture

I barley get my idea out and they are already using it.... I want credit for the Schrodinger model!

http://www.zerohedge.com/article/dagong-puts-italy-ratings-downgrade-review#comment-1443095

Mon, 07/11/2011 - 12:49 | 1444306 slewie the pi-rat
slewie the pi-rat's picture

your comments have been fwd'd to the nobel & pulitzer committees.

gotta love the EU finiserch, Barnier, calling for transparency @ the CRAs!

looks like its gettin to be the NWO v. the POW (pissed-off world)....

Mon, 07/11/2011 - 10:24 | 1443550 Zero Debt
Zero Debt's picture

Bankruptcy is the best regulator.

 

Mon, 07/11/2011 - 10:29 | 1443583 Troy Ounce
Troy Ounce's picture

+ 31.1035

Mon, 07/11/2011 - 13:29 | 1444481 shortus cynicus
shortus cynicus's picture

Bankruptcy is a barbaric relic.

 

And yes, It can't be eaten too.

Mon, 07/11/2011 - 10:25 | 1443555 agent default
agent default's picture

The EU likes the rating agencies only when they say what the EU wants?  They should just withdraw their ratings on all EU debt.  RW/NR Bitchez!

Mon, 07/11/2011 - 10:27 | 1443568 Sqworl
Sqworl's picture

Fear not my klepto's Dick the best SRO money can buy is on his way to rule the day!

Mon, 07/11/2011 - 10:32 | 1443606 hazek
hazek's picture

Could this actually be a good thing since people would likely do a lot more due diligence when deciding which bank to do business with instead of relying on ratings agencies?

Mon, 07/11/2011 - 11:04 | 1443808 IQ 145
IQ 145's picture

 No, it can't actually be a good thing. It doesn't matter what bank you do business with; part of the motivation for the ECB, and EU "systeme"; is central power and control. Bank failure is a thing of the past, what you're going to get instead, is currency failure. Sorry about that.

Mon, 07/11/2011 - 11:07 | 1443826 hazek
hazek's picture

Yea, you are right. I don't know what I was thinking..

Mon, 07/11/2011 - 10:34 | 1443612 snowball777
snowball777's picture

What's next? Try-until-you-pass stress tests?

Does the ECB really want to buy all those bonds itself? LOL, fucking pikers.

Mon, 07/11/2011 - 10:45 | 1443663 r101958
r101958's picture

Perhaps the UK/US ratings agencies should rate our state and national debt with the same jaundiced eye that they rate the Eurozone. If integrity played any part in the current ratings then all our debt would not be rated AAA. Let's face it, our ratings agencies use the ratings whenever investors start running away from treasuries. Amazing how this latest thing with Italy surfaces right after a disastrous employment report. I posted the following yesterday:

by r101958
on Sun, 07/10/2011 - 11:12

"Let's imagine that there is a Benelux ratings house, a Franco ratings house and a German ratings house. All of them are of the same 'reputation' as S&P, Fitch, Moody's. Does anybody here actually think that they would not be rating Euro debt at AAA and downgrading each and every one of our states. Not to mention downgrading US national debt? Maybe then there would be a 'flight to safety' to the Euro or maybe even more to the Canadian dollar and the CHF. The fact that the big three rating houses are located in the UK and US should be seen by everyone as a huge red flag. The overall scheme here is that when investors start running away from US treasuries the UK/US owned ratings houses will pick another Euro state to downgrade thereby sending those investors running right back to US treasuries.

   To clarify; I am not stating that the Euro states shouldn't be downgraded, they should be. However, so should US/UK debt as well as US state/municipal debt. That could happen if there were Euro owned rating houses (the EC has stated as much). The Chinese have started their own ratings house for this very reason. Instead we (the US/UK) have a ratings house monopoly and you'll note that our debt and that of the states is still rated very favorably."

Typical ponzi tactic.

Mon, 07/11/2011 - 11:03 | 1443792 riley martini
riley martini's picture

  Not the "fount of all evil" but an important part of the fraud and theft. The AAA rated EU CDOs is another example of fraudulent ratings for cash vs ratings to measure risk. 

  Moodys the bullet proof corporation of the "fascist of Omaha"

Mon, 07/11/2011 - 11:12 | 1443866 YesWeKahn
YesWeKahn's picture

one day, some dictator will order the end of the democracy as well.

Mon, 07/11/2011 - 11:15 | 1443887 TK7936
TK7936's picture

My Rating Agency, Your Rating Agency....

Mon, 07/11/2011 - 11:18 | 1443902 Hondo
Hondo's picture

Do they think anyone is really going to lend to a bank based on their own analysis and rating......this is too funny.  It spells the end of the European banking system.....pull all your money.....and sell now....nobody has been able to justify why your should invest in any financial orgaization let alone European banks.

Mon, 07/11/2011 - 11:18 | 1443907 MFL8240
MFL8240's picture

They want the banks to police themselves then let them fail when they are in trouble and prosecute the criminals running them.

Mon, 07/11/2011 - 11:52 | 1444105 jmcadg
jmcadg's picture

S&P and Moody's just rated ECB Junk status.

Mon, 07/11/2011 - 12:13 | 1444194 JR
JR's picture

EU…Tells Banks to Police Themselves

Question: What would it look like if the financial cartel was in trouble on its way to pulling Europe together and melding it with the Fed on the way to world government? 

Answer: It would look like this; the final chapter dictating a cloak of secrecy in frantic desperation as they struggle to survive, and fail…

Mon, 07/11/2011 - 13:41 | 1444549 earnulf
earnulf's picture

I reject your view of reality and substitute my own for it!

   Sheldon, Big Bang Theory

It's really bad when the best lines are coming from sitcom....annnnnd our financial institutions, politicial institutions, governing bodies, etc, etc.

Mon, 07/11/2011 - 15:11 | 1444920 jmc8888
jmc8888's picture

...and the banks all promptly underreserve for anything, beat their earnings estimates, and pay themselves large bonuses...just before it crashes, and ask for another handout because their fraudulent holdings went south.

Glass-Steagall

Mon, 07/11/2011 - 15:56 | 1445128 alangreedspank
alangreedspank's picture

 

Doesn't sound that bad to me; if they keep saying the same thing to the banks instead of bailing them out.

 

Mon, 07/11/2011 - 17:05 | 1445409 Nnthnt1
Nnthnt1's picture

for once i think this is a good step.

Go to youtube and search for "david einhorn charlie rose"

You'll find an interesting interview with the hedge fund manager & his opinion on rating agencies.

 

 

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