Governments, which have been criticizing credit-rating companiesover sovereign-debt downgrades, should start a competing firm,according to Moody's Corp. Chief Executive Officer RayMcDaniel.

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“Public institutions that have both the expertise andcredibility among market participants should provide credit viewson sovereigns,” McDaniel wrote today in a paper called “A Solutionfor the Credit Rating Agency Debate” that was posted on the NewYork-based company's website.

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European lawmakers have blamed Moody's, Standard & Poor'sand Fitch Ratings for complicating efforts to resolve the region'sdebt crisis by cutting countries' ratings, leading the EuropeanUnion to adopt tougher regulations. While some have consideredprohibiting the companies from publishing their opinions, thatwon't stop investors from speculating on creditworthiness, McDanielsaid.

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“Rather than stifle those opinions, policy makers couldneutralize private-sector credit rating opinions by introducing apublic-sector voice to contribute competing views,” he said.

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To be credible, the new firm would have to be independent fromgovernments, have “analytical expertise” and disseminate itsopinions broadly, McDaniel said.

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“Given the number of public institutions that already exist thatfunction along these lines, and that have a record for independenceand credibility, establishing such a body is a matter of politicalwill,” McDaniel said.

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Governments also should stop using ratings in regulations, whichadds to the perception that the companies are too powerful, saidMcDaniel, who's led Moody's since 2005. The paper follows a speechthat he gave yesterday to the American European CommunityAssociation in Brussels, said Michael Adler, a spokesman forMoody's.

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The EU's top markets regulator said today that Moody's, S&Pand Fitch must be more transparent. The companies registered withthe European Securities and Markets Authority for the first time inOctober. The regulator said it hasn't decided whether the“shortcomings” constitute a breach of EU law.

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Last month, Leonardo Domenici, a member of the EuropeanParliament, called for a ban on ratings of sovereign debt thathaven't been approved by the country involved. Michel Barnier, theEU's financial services chief, said that creating a public EUcredit-ratings company would be a “costly matter.”

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Bloomberg News

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