BOE’s Salmon Favors Reducing Dependence on Rating Companies

Bank of England Chief Cashier Chris Salmon said it would be better for investors to have access to more detailed information on the financial industry so they can reduce their reliance on ratings companies.

“Investors need to be presented with a range of information, which allows them to build their own picture of a firm,” Salmon, executive director of banking services, said in a speech in London today. “Some of these may be less sophisticated investors than others, but if we are to reduce the dependence on ratings agencies, more data must in general be a good thing.”

Salmon also said that regulators need to make financial institutions safer and ensure resolution regimes are “fit for purpose” to remove the need for government bailouts of banks. The Bank of England has recommended that banks build up capital buffers and publish leverage ratios from the start of 2013, ahead of the Basel III timetables.

Responding to the argument that planned financial reforms are “too ambitious,” Salmon said it’s better to have a long transition period rather than “water down the reform so that change can be implemented more quickly.”

“Scaling back our ambitions for the reforms, for example by blurring capital definitions as some have suggested recently, or weakening the thrust of the new liquidity requirements, would involve sacrificing long-term gains and missing the great opportunity that we currently have to refashion the financial system,” he said. “Sticking to the task, and delivering the intent of planning changes is a key challenge facing the official sector, here and overseas, over forthcoming years.”

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