WASHINGTON (Thomson Financial) - The European Union is set to examine the way credit rating agencies are run in order to prevent a future financial crisis of the kind that happened in late summer, Fernando Teixeira dos Santos, chairman of the EU Council of Economic and Finance Ministers, said today.
'EU finance ministers and governors also gave a mandate to its Economic and Financial Committee to review alongside our international partners how to further improve transparency of complex financial instruments, of institutions and vehicles,' he told the International Monetary Fund's policymaking arm in Washington.
The committee will also search for ways 'to improve valuation processes, risk management and liquidity stress testing,' he said in prepared remarks to the International Monetary and Financial Committee (IMFC).
The Portuguese finance minister, who doubles as chairman of the EU council of finance ministers, while Portugal holds the rotating presidency of the EU, said 'a careful examination of the underlying causes of the recent turmoil should help identify problem areas as well as possible remedies.'
Financial markets around the world went haywire in August as the US sub-prime mortgage crisis worsened and the key central banks across the globe were forced to inject cash into the financial system to keep it operating normally.
Since then, policymakers around the globe have sought to examine its operations to prevent a recurrence of the summer meltdown.
The G7 has asked the Financial Stability Forum to analyse the underlying causes of the turbulence and offer proposals in a number of areas -- liquidity and risk management; accounting and valuation of financial derivatives; the role, methodologies and use of credit rating agencies in structured finance; and basic supervisory principles of prudential oversight, including the treatment of off-balance sheet vehicles. corbett.daly@thomson.com cbd/wash/ro COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.