Bank Regulators Perplexed On How To Implement New Financial Regulations

The restrictions against the credit agencies were based on their failure to properly rate the risk of mortgage securities which was a major contributing cause of the financial crisis. Nonetheless, it would have been more efficient to reform the credit rating agencies instead of prohibiting the use of their reports, especially since there is no viable alternative to their services.

The rating agency ban is equivalent to the FAA banning airlines from future purchases of Boeing or Airbus jets after a plane crash - it may sound like it makes sense until you need to buy the next plane and find out that there are no other major airline manufacturers. A ban on purchasing Boeing and Airbus jetliners would soon close down the airline industry and right now the ban on credit rating agencies is shutting down the essential task of determining proper capital levels in the banking industry. The result will be a reduction in lending by banks as they struggle to comply with confusing regulations that are subject to constant change.

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