European Internal Market Commissioner Michel Barnier is fighting to save one of his central proposals in his latest draft regulations on credit rating agencies after EU finance ministers expressed widespread opposition to it.
A move to force European banks to rotate the agencies they use – proposed as part of the third review credit rating agencies regulation last November – has raised concern among ministers who say the ratings market is not large enough to make it workable.
Following a discussion at a recent informal meeting of EU finance ministers in Copenhagen, Danish Finance Minister Margarete Vestager, representing the Council presidency, said that “member states have great concerns about the present proposals about rotation.”
“There are very few credit rating agencies which have the capacity and the muscle to administer the credit rating,” she said.
The Commission’s draft regulation asks European banks and companies to rotate the agencies they engage to rate their products every three to six years, with a “cooling off” period between rotations.
France supports the rule, but major European countries like Germany and Spain, as well as many large players in the industry say that the proposal is unworkable as there are only three major agencies – Moody’s, Standard & Poor’s, and Fitch – controlling 95 per cent of the European market.
There are also concerns over the fact that many banks are required to obtain two ratings for risky products, a factor that further limits issuers. Until now, the European Parliament seems to still be lending support to the Commission’s proposals and has not bowed to immense lobbying pressure from the industry.
Socialist Italian MEP Leonardo Domenici, who is the European Parliament’s rapporteur on behalf of the Economic and Monetary Affairs Committee, has upheld the rotation rule.
However, EU sources said that while the rotation rule has not yet been scrapped, the Commission and Council are currently working on how to make it “applicable in the real world”.
Officials say that little in the way of concrete proposals came out of the latest Copenhagen talks. This is the second hurdle to hit Commissioner Barnier in his bid to regulate agencies.
He has already been forced to remove a clause banning ratings for agencies under EU bailout programmes after it was slammed by his fellow commissioners.