Industry comments on Japan's new ratings rule

Japan''s Financial Services Agency released its second proposal on bank capital requirements at the end of March. Here S&P discusses the proposals.

The Financial Services Agency's FSA second proposal, as with its first proposal released on Oct. 31, 2004, prohibits banks from using un-requested ratings, excluding those on central governments, under the standardized approach. FSA's explanation of its rationale for this proposal is that there is a concern about the possibility that External Credit Assessment Institutions ECAIs could use un-requested ratings to pressure issuers to request ratings.

Standard Poor's believes the exclusion of ratings assigned without the request of the issuer creates an incremental potential for a most favorable ratings bias among issuers, and among banks implementing the standard approach. In-built incentives for both issuers and banks to engage in rating...

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