Criterion Affiliates Advise Reclaiming Power from the Ratings Agencies in Financial Times Op-Ed

August 24, 2007

Criterion affiliates Charles Calomiris and Joseph Mason published an op-ed in the Financial Times today entitled "Reclaim power from the ratings agencies." Calomiris and Mason argue that regulators should reclaim the power that has been transferred to ratings agencies to award ratings and determine the meanings attached to them.

Calomiris and Mason note that unlike typical market actors, ratings agencies are more likely to be insulated from the standard market penalty for being wrong — the loss of business. They explain that regulators could reclaim regulatory power by reforming existing regulations to avoid the use of letter grades in setting standards to permissible investments by regulated institutions. Calomiris and Mason conclude that full disclosure by regulated institutions of these new measures of portfolio risks and a greater reliance on market discipline to discourage excessive risk-taking would further improve the regulatory process.

To read their op-ed in full, click here.