The Pfandbrief 2011 | 2012

Regulation of rating agencies: Time for new priorities?
protected website. Other agencies not engaged by them should then (as long as they meet
certain requirements) be given access to this website. The purpose of this procedure was to
prevent “rating shopping” for structured financial products – a practice that previously was
not uncommon. This would have created a level playing field with the USA, where a very similar
regulation was passed at the end of 2009.
However, the final amendment to the Regulation governing rating agencies was passed
without this reform. The amendment to the Regulation that entered into force on 1 June
2011 essentially retained only the transfer of regulatory authority from the national supervisory
authorities in Europe to the newly created European Securities and Markets Authority
(ESMA).
Practical Experience and the Need for Reform
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The Regulation has far-reaching administrative ramifications for the rating agencies, not least
because of the comprehensive organisational requirements. Has anything changed for issuers,
as well? The agencies have grown more conservative in their assumptions and at the
same time, more pro-active in communicating. Fitch, Moody’s and S&P have tightened their
assumptions and stress scenarios several times since the onset of the financial crisis. Toughening
certain assumptions was an almost compulsory reaction to the experiences acquired
from the crisis in the financial markets. Understandably, the agencies do not wish to be criticised
once again for reacting too late.
Premature Rating Measures and Announcements
In many respects, however, the agencies’ actions have produced some strange phenomena.
For example, they appear to want to publish announcements about upcoming changes in
methods and/or models and the potential impact of these on Pfandbriefe particularly early.
In 2009, S&P published a draft of its new covered bond rating methodology and announced
that approximately 68% of all outstanding covered bonds could be negatively affected by the
planned changes. This news caused a great deal of anxiety in the covered bond market. When
the final version of the new method was published nearly a year later and several months after
that the review of the outstanding covered bond ratings had been completed, it turned out that
far fewer covered bonds were affected by the negative rating measures. The agency can be
credited with some issuers having taken steps to optimise their collateral in order to maintain
the desired (generally triple-A) rating.
The rating agency Fitch stated in an October 2009 press release that it was placing nine
Mortgage Pfandbriefe, with cover pools consisting mainly of commercial property loans,
on the watch list. It justified this action by announcing that it wanted to test its commercial
property financing risk assumptions. Only in May 2010 did Fitch publish a paper intended to