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Archive » April 2025 » Ratings and Regulation: a relationship at first fruitful (Basel II), then contradictory (Eba Lom and practices), now dangerous (Basel 3+, Crr3)

Ratings and Regulation: a relationship at first fruitful (Basel II), then contradictory (Eba Lom and practices), now dangerous (Basel 3+, Crr3)

Giacomo De Laurentis
April 2025 - n. 4
Keywords: Banche, rating, vigilanza
Jel codes: G21, G28, G24

Ratings were already established as powerful tools before Basel II. Basel II effectively integrates internal ratings: these are the final result of the creditworthiness assessment, to be used in both lending decisions and regulatory processes. They have a medium-term perspective, and banks have flexibility in choosing how to assign them. However, in the context of the Eba-Gl Lom and supervisory practices, internal ratings have evolved into outputs of statistical models, target short-term horizons, and are often approved by parties not involved in lending decisions. Basel 3+ upholds Basel II approach, fails to address the mentioned inconsistencies and leads to a misleading perception that internal ratings are no longer crucial. Crr3 emphasizes the use of external ratings and call for the creation of new rating agencies. These changes steers towards transactional banking, diverging from the Eba-Gl Lom's orientation. Are these shifts the result of a deliberate change in approach, or are they the consequence of varying perspectives randomly prevailing at different points, without oversight by any «Czar of ratings»?

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