Thursday, December 8, 2011

Bankers must do their own risk assessment

Rather than depending upon ratings agencies. Well how about that? Bankers will have to work at their trade, inside of accepting outside opinions. About time. The secret of banking is making loans that will be repaid. Any turkey make made a loan, the trick is to make loans that get repaid. On time, with interest.
The Wall St rating agencies, Standard and Poor's, Moody's Investor Services, and some others, have been "rating" investments, banks, and even countries as AAA, A,B,C just like grades on report cards. Trouble is, the ratings agencies made some astoundingly poor ratings over the years, such as rating mortgage backed securities AAA. Banks have been dumb enough to accept agency ratings and been burned badly.
Apparently the word is getting around. Congress required the the FDIC to remove any language referring to agency rating from the banking regulations. This is finally filtering down to even the dumbest banks.

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