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ESMA urges rating agencies to avoid quick-fire downgrades amid crisis - Reuters

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ESMA urges rating agencies to avoid quick-fire downgrades amid crisis - Reuters

The European Securities and Markets Authority's Chairman Steven Maijoor said rating agencies should avoid quick-fire downgrades of companies and countries as economies slide into recession as it can exacerbate the coronavirus crisis, Reuters reported.

Maijoor added that the watchdog had intensified its interactions with rating agencies to gain better insight into their response to the pandemic. He also said that while a significant increase in downgrades is expected due to the coronavirus, "the timing of ratings actions needs to be carefully calibrated," according to the report.

"What's important is the timing between taking into account the increased risks of poorer credit quality and not acting procyclically, and making sure the timing of these downgrades is done in an appropriate way," Maijoor said, adding that the agencies need to do this independently since regulators "cannot and should not interfere in the ratings processes."

Lawmakers have in the past given regulators direct oversight of rating agencies during crises, most recently during the 2008 financial crisis to stop sovereign downgrades from worsening the eurozone debt crisis, the report said.

The ESMA chair also said there was a need to look into the high levels of redemptions and stress in money market funds.

He also commented on the recent national-level bans on short-selling and said the regulator does not deem a blanket ban on short-selling of shares to be necessary for now, the newswire reported.

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