Changes afoot at rating agencies

Rating agencies are under fire once again, this time for failing to anticipate Enron’s bankruptcy. But they are looking to improve their methodology. What do the changes mean for banks that will have to rely on their ratings under Basel II?

As Enron spiralled toward bankruptcy last year, investors focused their anger on the company’s auditors and executives. But the rating agencies that failed to discover Enron’s perilous condition and downgrade its debt took their share of abuse. The failure of Moody’s Investors Service, Standard & Poor’s (S&P) and Fitch to discover the extent of Enron’s malaise rekindled the long-running debate over the value of agency ratings.

Roughly one month before Enron’s December 2 bankruptcy filing

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