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.


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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Translational Lift's picture
EU Prepares Law To End Influence Of Rating Agencies, Tells Banks To Police Themselves


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

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.

Panafrican Funktron Robot's picture

Wonders aloud whether this will include Dagong.

Quaderratic Probing's picture

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

the not so mighty maximiza's picture

Things must be pretty bad.

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....


A Man without Qualities's picture

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

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. 

williambanzai7's picture

Who has the copy right on AAA?

Jim in MN's picture

The American Automobile Association?

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.

macholatte's picture


suggestion: just change the faces and it's deja vu all over again,16641,19990215,00.html

NoRestForTheWicked's picture

EU needs to go easy on the ouzo.

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.

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.

Deepskyy's picture

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


Paralympic Equity's picture

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

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.

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.

Caviar Emptor's picture

Gloves are coming off

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.

metastar's picture

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

Caviar Emptor's picture

Flash: My own rating agency has upgraded my performance

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.

wandstrasse's picture

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

aVian's picture

freaking priceless...hope you got gold or silver

Central Wanker's picture

Nope. Gold has been rated Junk by the EU.

johngaltfla's picture

GOOD IDEA! Should have let WaMu regulate themselves too!


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

riley martini's picture

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

averagejoe's picture

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

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.

carlo's picture

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

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...

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.

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.

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. 

camoes's picture

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

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.


Vergeltung's picture

the emperor has no clothes!!

wandstrasse's picture

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

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).

alien-IQ's picture

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

Silverhog's picture

Calling all Bozo's. This is beyond hilarious.