Thursday, October 28, 2010

FSB issues principles to reduce reliance on CRA credit ratings

The FSB published on 27 October Principles for Reducing Reliance on Credit Rating Agency (CRA) ratings. The goal of these principles is to reduce the cliff effects from CRA ratings that can amplify procyclicality and cause systemic disruption. The principles would do so by removing the "hard wiring" of CRA rating thresholds into regulatory regimes, which cause mechanistic market responses to CRA rating changes. Such changes would incentivise banks and other financial institutions to improve their independent credit risk assessment and due diligence capacity.

The FSB is asking standard setters and regulators to consider the next steps to translate the principles into more specific policy actions to reduce reliance on CRA rating over a reasonable timeframe. The FSB will monitor progress.

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