The European Union is retreating from a vow to defang credit-rating companies as reforms prompted by the 2008 crisis collide with the needs of bond investors.
“More than taking a sledgehammer to crack a nut, Europe is using TNT,” said Jonathan Pitkanen, who helps oversee about $43 billion of fixed-income as head of credit research at Threadneedle Asset Management Ltd. in London. “Then the law of unintended consequences kicks in and they have to back off.”
Moody’s “remains hopeful” that a revised regulatory framework “will not include features that would undermine the functioning of European credit markets and access to credit,” said Daniel Piels, a spokesman for Moody’s in London.
Ratings are “deeply embedded” in financial markets and in the regulations that govern those markets, said Doig. Definitions of creditworthiness help define what money managers can and can’t do with their clients’ funds, delineate the boundary between investment-grade and high-yield debt, and guide the cost of repurchase agreements banks use to borrow from central banks, he said.