Basel Committee on Banking Supervision : dictating credit rating agency guidelines

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Since 2010 we have seen nation after nation cry for a bailout package from the IMF through its many central banks, leading to austerity measures to gain the credit which are devised to completely takeover the entire asset base of the nation in need of a bailout.

The following document explains how the Basel Committee on Banking Supervision (BCBS) is also in control of the Credit Rating Agencies (CRAs) such as Moody’s, through the issuance of guidelines. Moody’s and other CRAs are very busy dismantling the high street banking system based entirely on their ability to downgrade, upgrade or affirm banks and company financial ratings.

Ultimately the power to this effect lies with the Bank for International Settlements through the BCBS as the following extract explains : 

Response to the Basel Committee on Banking Supervision Consultative Document relating to Strengthening the resilience of the banking sector

The International Organisation of Securities Commission (IOSCO) is grateful for the opportunity to provide comments to the Basel Committee on Banking Supervision (Basel Committee) on its consultative report, issued in December 2009, entitled Strengthening the Resilience of the Banking

Sector (Consultative Report).1

As the leading international grouping of securities regulators, IOSCO aims to establish high standards for regulation. In recent years, it has established a set of guiding principles for credit rating agencies (CRAs) and developed a model code of conduct for CRAs (IOSCO Code of Conduct). We have, therefore, a keen interest in the application of IOSCO principles for CRAs. In that regard, we wish to comment on language proposed in the Consultative Report that would, we believe, unintentionally conflict with the IOSCO’s objective that its Code of Conduct for CRAs be based on a comply or explain approach so that it could be applicable to all types of CRAs engaged in a variety of different business models.

Paragraph 196 of the consultative document proposes to incorporate elements of the IOSCO Code of Conduct for CRAs into the Basel II framework by revising paragraphs 90, 91 and 565(b) of that framework. The proposed revision to paragraph 565(b) would require that in order for the ratings issued by a CRA that qualifies as an External Credit Assessment Institution (ECAI) to be used within the securitisation framework, the CRA/ECAI must provide a credit assessment (i.e., external rating) free of charge. The proposed revision is understandable, considering a prudential supervisor’s concern that credit ratings issued by subscription-based CRAs are only available to defined people. Furthermore, this revision is in line with 3.4 of the IOSCO Code of Conduct.
 
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Further Study
In Profile : Basel III
Comparisons between Bank for International Settlements, (BIS) guidelines pre WWII, with those of today 
In Profile : G-SIFI total corporate dictatorship directed by the Bank of England