Study: Major banks favored by credit agencies

24 October 2012

Major banks are granted higher credit ratings from agencies than they actually deserve, a new study has indicated.

New research released today (24 October) by the European Central Bank (ECB) has noted that ratings firms tend to favor bigger financiers when evaluating their creditworthiness because they provide them with other business.

This survey involved analyzing around 39,000 quarterly ratings awarded to lenders by Fitch, Moody's and Standard & Poor's between 1990 and 2011 and it established that big banks were given special treatment due to the "conflicting incentives" of these important agencies.

For instance, the report noted that agencies have a lot to gain from big banks due to the need for financiers to pay an organization to evaluate their securitized debts.

However, Moody's spokesman Michael Adler dismissed these findings, telling Bloomberg his agency "strongly disagrees" with the methodology and conclusions of the study.

Meanwhile, Dan Noonan of Fitch commented: "To suggest that large bank ratings are conflicted simply because those banks might also be in a 'stronger client position' is in our view a cynical leap."

By Gary Cooper

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