Rain at times

7 September 2007 By Richard Beales Follow @richardbeales1

Credit ratings are sanctified by US laws and international bank capital rules. So investors rely on ratings, often more than they should. Rating agencies probably take more flak than they deserve. Breakingviews offers a few wacky ideas to shield them from blame.

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Rating agencies face scrutiny from the Securities and Exchange Commission and attorneysgeneral in New York and Ohio over their ratings for subprime mortgagerelated debt instruments, the Wall Street Journal reports.

European regulators are also examining aspects of ratings, including conflicts of interest agencies may have with issuers, who pay for ratings, and investment banks, which structure complex debt instruments.

The agencies say they have policies and practices in place to keep ratings objective, and that historical statistical analysis supports this contention. Previous credit downturns and individual cases such as the bankruptcy of Enron have prompted similar scrutiny and a revamp of rating agencies' practices, but little action by regulators.

Ratings thresholds feature in US investment laws and the international Basel standards for bank capital.

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