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Fitch Installs Its Own Glass-Steagall

2 pointsby nameless_noobover 13 years ago

1 comment

SkyMarshalover 13 years ago
Fitch is being clever for another reason as well. By being first to downgrade these major banks, they can do it with relatively minor consequences, since there are still 2 out of 3 ratings agencies that haven't downgraded yet.<p>SOP for funds with credit quality requirements measured by the ratings agencies is typically that at least 2 out of the 3 agencies must agree on the rating.<p>If one of the three downgrades, no changes have to be made to the fund composition, but if a second downgrades it could set off a huge wave of selling and rebalancing as funds adjust their portfolio credit quality.<p>It's the second agency to downgrade these banks that will really throw a monkey wrench into the financial system. Fitch may be reading the writing on the wall (Euro crisis + US political gridlock) and betting that downgrades will be inevitable, so may as well get the jump on the other two agencies.