ECB chief wants more control of credit rating agencies

Nov 23, 2007, 12:19 GMT

Frankfurt - The recent turmoil on financial markets shows the need for a tighter control of credit rating agencies, European Central Bank (ECB) president Jean-Claude Trichet said Friday.

'We need to increase the information content of the agencies and make the monitoring process more transparent,' Trichet told the European Banking Congress in Frankfurt.

International rating agencies have come under fire for their positive assessment of risky financial products placed on the market for US subprime lenders.

Once the market crashed, many investors lost huge sums and banks were forced to write off millions and even billions of dollars.

Many investors relied solely on the information provided by international credit rating agencies, a practice which the ECB chief called 'very risky.'

Structured credit markets 'are exposed to valuation problems, which make the market very vulnerable to a shift in investor sentiment,' Trichet said.

Urging the financial industry to exercise greater self-control, he urged 'improvements in risk management at all levels.'

This did not mean that a dramatic change in rules were needed or that too much regulation be put in place. 'I am firmly convinced that voluntary participation is the best way,' Trichet added.

Since the start of the credit crunch in early August, the ECB has pumped extra liquidity into euro money markets in a bid to keep overnight rates close to the ECB's key rate of 4 per cent.

Dresdner Bank chief Herbert Walter told the gathering that more market transparency was preferable to strict regulation.

The Dresdner Bank, a subsidiary of insurer Allianz, posted third quarter losses as a result of the crisis on financial markets.