It’s hard to imagine anyone will take tough-sounding stances by
ratings agencies seriously, but Moody’s, in a chat with the Financial
Times, says it has (finally) taken notice of how banks play games with
regulatory capital requirements. Sheila Bair noted in an interview at
the Atlantic economy summit in March that in retrospect, one comparison
that flushed out banks that were likely to get in trouble was that the
were in compliance with risk weighted capital rules but also had very
high levels of leverage (simple equity to total assets measures).
The Moody’s step takes place by updating its risk models to adjust
for bank phony baloney. I’d also be thrilled if they started adjusting
ratings for lack of transparency, but we’ll take what we can get. And
this adjustment isn’t mere lip service; a wave of downgrades is coming
based on this change.
