MIGHT ratings be the worst form of credit assessment apart from all the others? Dubious appraisals by the big agencies—Moody’s, Standard & Poor’s (S&P) and Fitch—contributed to the crash. Their ratings of corporate debt may have held up well, but they were way off in structured securities, not a lot better in sovereign debt, and now their municipal-bond ratings, too, are under fire. Downgrades also amplify procyclicality. Cutting AIG’s debt rating in 2008, for instance, sent investors rushing for the exit.
Ending this dependence is a priority for the Financial Stability Board, which co-ordinates the G20’s financial policies. It has asked standard-setters and regulators to find ways to pull ratings from bank-capital requirements, rules on investment-fund holdings, margin agreements and so on.
