Banks should not be allowed to turn into automated credit machines
Sir if the credit rating agencies were gubernatorial offices with bureaucrats instead of private companies I am certain many would be looking at them from a quite different perspective but the truth is they are their function is a regulatory one, to inform the markets where they can go and at what price.
John Dizard in “Time to see is established credit rating agencies make the grade January 15 tell us that we should count out the possibilities of going “back to a system where credit is dispensed by bank credit committees” as they “aren’t the people structures of capital available in the banking system to do that”. Well how sad, our banking system is the now only an automatic credit machine that follows what the piper says? Of course we have to get out of the current system…it is crazy… the horrendously badly awarded mortgages would not have gone anywhere had it not been for the prime ratings.
I am in no way predicating against the credit rating agencies, they have a role to fulfil and they should be able to compete favourably in the market of credit opinions, but what I am totally set against is bestowing them with so much power. Get rid of the system of calculating the minimum capital requirements for the banks based on risks as calculated by the agencies and you will immediately stimulate some of that credit analysis capacity that we would like to see in our banks.
Dizard and others spend time analyzing whether by changing the compensation structures of the credit rating agencies one could correct their current weaknesses. Of course that is always a good thing to do, but to think this would stop us from being led into even worse systemic risks, when thereby trusting even more those few empowered to tell us what to do, is just to blithely ignore all the lessons learned by mankind.
John Dizard in “Time to see is established credit rating agencies make the grade January 15 tell us that we should count out the possibilities of going “back to a system where credit is dispensed by bank credit committees” as they “aren’t the people structures of capital available in the banking system to do that”. Well how sad, our banking system is the now only an automatic credit machine that follows what the piper says? Of course we have to get out of the current system…it is crazy… the horrendously badly awarded mortgages would not have gone anywhere had it not been for the prime ratings.
I am in no way predicating against the credit rating agencies, they have a role to fulfil and they should be able to compete favourably in the market of credit opinions, but what I am totally set against is bestowing them with so much power. Get rid of the system of calculating the minimum capital requirements for the banks based on risks as calculated by the agencies and you will immediately stimulate some of that credit analysis capacity that we would like to see in our banks.
Dizard and others spend time analyzing whether by changing the compensation structures of the credit rating agencies one could correct their current weaknesses. Of course that is always a good thing to do, but to think this would stop us from being led into even worse systemic risks, when thereby trusting even more those few empowered to tell us what to do, is just to blithely ignore all the lessons learned by mankind.
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