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Online debate discusses Credit Ratings and the COVID-19 crisis

In crisis times opinions expressed by Credit Rating Agencies (CRAs), and more specifically their downgrades, tend to provoke shockwaves across the financial system. Downgrades may indeed have a severe impact on sovereigns, banks or on market-based finance players, not least because they may trigger automatic responses both by public actors (e.g. exclusion from collateral frameworks) and by private actors (e.g. divestments or fire sales, exclusions from indexes or ETFs).

As is well-known, CRAs also tended to act late and to over-correct, thereby adding to pro-cyclicality. It can therefore be feared that the soundness of financial actors during the COVID-19 crisis will partly hinge on CRA opinions too. However, the influence of CRAs’ opinions on public actors’ credit worthiness assessment may be slowly vanishing, as the recent decision of the European Central Bank to accept junk bonds among eligible collaterals seems to imply.

On 4th June the online seminar “Credit Ratings and the COVID-19 crisis” took stock of the current regulation and supervision of Credit Rating Agencies in the European Union and assessed the impact of recent or future downgrades on issuers and markets. Lastly, it explored lessons learned from the supervision of CRAs during the past euro crisis for the current COVID-19 crisis.

Speakers included Stephen Hynes and Gwenael Pover (ESMA). The debate has been moderated by Elena Carletti (Bocconi University and Florence School of Banking and Finance, European University Institute) and featured as discussants Colin Ellis (Moody’s) and Richard Portes (London Business School).

Watch the debate