The credit rating agent’s cloister conundrum

Sir, everywhere we turn we read about the impacts of upgrading and downgrading of the credit ratings, as when Jennifer Hughes reports “CLO ratings set to benefit from Moody’s re-evaluation” March 24.

Having given these credit ratings so much importance, should we not also have to construe cloisters where the credit rating agents can isolate themselves from the temptations? But, answering that question let us not also forget that if we isolate the credit rating agents in their cloisters, then it will most probably be us who will fall into the wrong temptations. What a conundrum!

FT, dare to look beneath the tip of the iceberg!

Sir, Jennifer Hughes in “Bank dip into tool box for Basel III” March 10, insists, as you all do, on keeping her eyes firm on the tip of the regulatory iceberg, without the slightest concern of what lies beneath. She, as you all do, speak about the minimum equity capital ratio as a percentage of risk-weighted assets while ignoring that if these risk-weights are wrong this has no meaning.

For instance, early this morning Spain was still weighted 0 percent and now, as a result of the two-notch downgrading of its credit rating, suddenly its risk-weight has become 20%; and which means, in Basel II terms, that banks will now need a whopping 1.6 percent in capital when lending to Spain... which means that banks will now be allowed to only leverage their capital a meager 62.5 to 1… poor banks!

What a great short phrase!

Sir it is always a pleasure seeing someone able to describe perfectly a difficult situation in just one sentence. Therefore I would wish to congratulate Jennifer Hughes, The Short View, April 13, for saying it all summing up the market reactions to the “Greek bail-out” with: “In essence, investors appeared less relieved yesterday than they were worried last week”.

It is all there in only 87 characters and so that after adding 7 with the space for “Greece” she would still have 46 to go on her tweet!

Keep it up Jennifer Hughes!

Sir we have all been following for some time now Jennifer Hughes spirited and continuous defence of the accountants with respect to that they should not be forced to do the dirty laundry for the financial regulators and be forced to be more flexible on their mark to market principles. Since I am not an accountant and I have quite often been a bit critical of them (especially on the issue of the few big accounting companies left) I could have easily been tempted to join the choir had it not been for Jennifer Hughes´ very sensible reports. We much appreciate her efforts.

The market is what it is and how then everyone accommodates to it is a completely different issue. If flexibility is what is needed then let the regulators be more flexible. I for instance cannot believe how the regulators, so far into the downward rating spiral, still force the banks to take into account for their minimum capital requirements the by now quite discredited opinions of the credit rating agencies.

There is more to be gained from a debate, even while speaking different tongues

Sir Jennifer Hughes does a very good and spirited defence for accountancy global unification in her “More to be gained from talking in the same tongue”, September 27 but although she is absolutely right in all what she says she is still wrong.

One of the reasons, or perhaps the only reasons why some of us feel happy about having US GAAP and IFRS living side by side is because that helps to sustain a debate among their respective Standard Boards on matters fraught with such intrinsic difficulties as accountancy. No, let us please hope that we will never have to face one solid cohesive block of standards since who knows what they could contain and there would be no one with sufficient strength to oppose it. For a living example of how much we lose out in benefits from diversity let us just consider all the risks that are beginning to surface as a consequence of having relegated so much of the world’s regulatory power over banks to a single single-minded group in Basel.