US regulators struggle with ratings alternative
A requirement in the Dodd-Frank Act to remove all references to credit ratings from the US regulatory framework has created a huge challenge for supervisors, which have to find a substitute. Any revised measure could put US banks at a competitive disadvantage when it comes to Basel II and III, some suggest. Mark Pengelly reports
US legislators have made their thoughts on credit ratings very clear: an overreliance by investors on ratings was one of the reasons behind the crisis, and they are determined to ensure it doesn’t happen again. The Dodd-Frank Act, signed into law last July, made this a reality, requiring regulators to remove all references to credit ratings in financial rules. The problem is, what should they be replaced with? US supervisors have been kicking the issue around for the best part of a year – and
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