King urges investors to overlook hasty downgrades

Bank of England governor Mervyn King has urged investors and public authorities to pay less attention to ratings agencies, which he said have often "rushed" to downgrade.

Appearing before the Treasury Select Committee (TSC) today to discuss the Financial Stability Report, King was asked whether he believed there are "rogue" ratings agencies.

Although he insisted there has never been a suggestion of criminal behaviour by agencies, he said some have been "carried away...by the hubris surrounding the financial sector before the crisis" and then "rushed in to be the first to downgrade".

He added the Bank of England is leading the way in not using ratings as a "mechanical" basis from which to extend finance and urged other central banks to do the same.

"The best way of dealing with this is for public authorities around the world to be seen to rely far less on ratings than they do," he explained.

King said authorities should focus more on sovereign debt spreads than ratings.

He also pointed to the "muted" response to S&P's downgrade of France as a sign markets are looking beyond ratings agencies.

"We need to make sure that, as far as possible, we do not have a large pool of investors, whether it is pension funds or others, who have built into their portfolio mechanical responses to ratings, which you can see from time to time," he concluded.