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New model of ranking ratings created
By Pan Xiaoyi |
September 30, 2010, Thursday
|
Print Edition
Print Edition
CHINA yesterday set up the first national credit rating firm that will charge investors rather than borrowers to make independent risk assessments.
The previous model has drawn criticism for misleading investors due to a strong alliance between borrowers and ratings agencies, which may create a conflict of interest.
China Credit Rating Co is funded by the National Association of Financial Market Institutional Investors (NAFMII), which was established in 2007 by the People's Bank of China, the central bank, to help develop the country's over-the-counter financial markets. NAFMII spent 50 million yuan (US$7.5 million) to set up the rating agency.
The pricing method used by leading ratings agencies in the west such as Moody's Investors Service and Standard & Poor's charge issuers to evaluate credit. The agencies have been blamed for assigning top-notch ratings to mortgage-linked securities which pay them. But most of these securities turned out to be junk when the housing market collapsed, for example in the United States.
"It is very important to promote the reform of the ratings industry,'' said Liu Shiyu, vice governor of the People's Bank of China. ''The new firm is a tentative effort on this road. But it will be very difficult to carry out the changes."
The previous model has drawn criticism for misleading investors due to a strong alliance between borrowers and ratings agencies, which may create a conflict of interest.
China Credit Rating Co is funded by the National Association of Financial Market Institutional Investors (NAFMII), which was established in 2007 by the People's Bank of China, the central bank, to help develop the country's over-the-counter financial markets. NAFMII spent 50 million yuan (US$7.5 million) to set up the rating agency.
The pricing method used by leading ratings agencies in the west such as Moody's Investors Service and Standard & Poor's charge issuers to evaluate credit. The agencies have been blamed for assigning top-notch ratings to mortgage-linked securities which pay them. But most of these securities turned out to be junk when the housing market collapsed, for example in the United States.
"It is very important to promote the reform of the ratings industry,'' said Liu Shiyu, vice governor of the People's Bank of China. ''The new firm is a tentative effort on this road. But it will be very difficult to carry out the changes."
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