“We do not expect that with Basel 3 the ratings of banks will return to pre-crisis levels”. Another bad omen from the American rating agencies: this time it is Alain Laurin, senior vice president of credit policy at Moody's, who spoke at the House hearing.
According to the agency's analysts, Basel 3 “is a positive step, but one which will bring about inevitable transition risks and which will meet severe limits in achieving the solvency of the European banking system. An increase in capital and liquidity will make banks safer but will not make banking safer and in the short term the structural causes of the current disturbance in the financing market, ie the sovereign debt crisis, will not be resolved. The new regulation will not affect all banks equally, the impact will differ according to their size. On the little ones the impact will be harder. However, Basel 3 will not make the banks safer – he insists -. Short-term risks will increase. The trust that the banks will be able to maintain will be important”.
“The EBA's requests can lead banks to a reduction in operational capacity and a credit crunch. It's a possibility." And in any case – added the general manager of Moody's Italia, Alex Cataldo -, “a European rating agency is welcome. It is enough that the same rules are respected, because good competition helps, bad competition damages”. Perhaps it would be appropriate - adds Laurin - "a compromise on the timing" to implement the EBA's requests to the banks, an understandable operation, "but which creates further pressure on the banks' balance sheets and can cause risks. The challenge is to find a compromise on times, between acceleration that is too fast and one that is too slow”.
As for possible errors of judgment in issuing ratings, the Moody's vice president claims that “it is hard to believe that, despite all the positive things that can happen, banks will not continue to remain an opaque activity. We do our best day after day to evaluate stand alone ratings. We use our own methodology that seeks to ensure fairness, which doesn't mean eventually there won't be a Lehman situation that has strong Tier 1 capital and the day after it files for insolvency." In any case, “we only evaluate the risk of a country's sovereign debt - intervenes and points out Alex Cataldo - and we never comment on political aspects. We only evaluate the aspects that can impact the ability to pay the debt".
