MercoPress. South Atlantic News Agency

Credit rating agencies admit errors before UK Parliament

Credit and risk rating agencies have admitted errors were made when assessing some of the financial instruments that have been blamed for the credit crunch. Representatives of the three main agencies - Standard & Poor's, Fitch, Moodys - were grilled by the House of Commons Treasury Select Committee

They said that their assessment of securities backed by sub-prime mortgages turned out to be incorrect. But they said these instruments were not too complex to rate accurately. "The assumption that we made about how these assets would perform in the future turned out to be incorrect," said Ian Bell, head of European structured finance at Standard & Poor's. Credit agencies carry out work to determine the worthiness or otherwise of financial investments. They have been accused of failing to spot the size and risk of the bad US housing debt that was resold around the world, causing multi-billion-pound losses. It was the discovery of these losses that caused the global credit markets to freeze up, and ultimately led to governments around the world having to bail out their banking sectors. The ratings agencies said that credit ratings were just one factor that investors should look at when making investment decisions, but admitted that less sophisticated investors may have been over-reliant on their assessments. The committee also criticised the agencies for failing to warn their clients adequately of the problems faced by the Icelandic economy before its banks collapsed last year. Some 116 local councils deposited more than £ 858 million in the failed banks, because they offered a relatively high return with a high credit rating. (BBC).-