The European Union and the United States should join forces to investigate the role of credit ratings agencies in the current debt market turmoil, AP quoted the EU's head of financial services as saying Friday. Ratings agencies such as Standard & Poor's Corp., Moody's Investors Service Inc. and Fitch Ratings have come under fire for being slow to downgrade investments based on U.S. housing loans made to borrowers with poor credit months. A sharp rise in people defaulting on so-called subprime mortgage payments led to the global credit crisis because many of those debts were repackaged as asset-based securities and sold to banks that did not know or understand the potential losses they were taking on. They subsequently baulked at taking on new debt, causing liquidity to dry up and a crisis of confidence in markets. Speaking to reporters ahead of the first meeting of EU finance ministers and central bankers since the crisis hit, Charlie McCreevy said the EU and the United States should coordinate their responses to the agencies, which currently operate under a voluntary code of conduct. «Whatever we should do, should be done on an E.U., U.S. basis,» he said. However, he indicated it is too early to conclude that the rating agencies should be subjected to new regulations. «Let's wait and see,» he said. McCreevy has already asked European market regulators to look at why ratings agencies did not flag up problems with subprime mortgages after ample evidence of mounting defaults from the second half of 2006. The Committee of European Securities Regulators, which advises the EU executive and finance ministers, said earlier this week that it has been tasked with examining possible conflicts of interest _ they are paid by the institutions they rate _ and the agencies' ability to rate debt. Specifically, McCreevy asked the committee to look at the «apparently slow response» of rating agencies to problems with subprime mortgages after ample evidence of mounting defaults from the second half of 2006. The German and French governments have also asked the EU to examine the behavior of the agencies, which currently operate under a voluntary code of conduct. British Treasury Chief Alistair Darling said Thursday that a review by the Financial Stability Forum, which comprises finance ministers, central bankers and regulators under the chairmanship of Bank of Italy Governor Mario Draghi to assess the underlying causes of recent market developments, should consider role of the rating agencies.
