November 27, 2016

Why do bank regulators still allow few human fallible credit rating agencies to have so much regulatory influence?

Sir, I refer to Tim Harford’s “When forecasters get it wrong” and Gillian Tett’s “‘Shy’ voters: the secret of Trump’s success” November 26

What would have been the results if the election had been decided by a couple of polls or some forecasters?

I ask because bank regulators have still not been able to move away from that huge systemic risk of assigning so much importance to some few human fallible credit rating agencies.

In 2003 in a letter FT published I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds. Friends, as it is, the world is tough enough”

And as an Executive Director of the World Bank, while Basel II was discussed, time and time again I tried to alert to this systemic risk, all to no avail.

Sir, just imagine if the AAA rated securities backed with mortgages to the subprime sector had been able to continue for one year more before their gigantic faults were unveiled?

And again, why should some with an AAA rating and that because of that is already favorably treated by the market, have to be favored by regulators too? Is it so hard to understand that excessive favoring is dangerous too?