December 18, 2009

Sheer regulatory lunacy!

Sir Anousha Sakoui in “S&P in rating threat to covered bonds” December 16, writes that these bank issued will be rated among other based on “the likelihood of government support”. Given that governments appoint financial regulators who now use the credit risk ratings issued by the credit rating agencies to decide how much equity banks need to have, presumably so that the banks won´t fail and the governments will not have to bail them out, it is absolutely crazy that the credit rating agencies when rating the risk also measure the government´s willingness to bail out the bank. Is this dangerous and incestuous circle of opinions not sheer lunacy?