Credit rating agencies were given a rough ride by politicians on Wednesday after refusing to apologise properly for blunders that sowed some of the seeds of the financial crisis.
Industry officials grilled by the treasury committee left MPs unconvinced that problems which surfaced during the crisis have been addressed, the committee's Conservative chairman Andrew Tyrie said.
A number of you don't even feel you have anything to apologise for, Tyrie told the top officials from Moody's, Standard & Poor's, Fitch and DBRS.
Frederic Drevon, managing director at Moody's, said the agency was not satisfied with the performance of its ratings of products based on the U.S. housing market.
This was a reference to the highly rated structured subprime products made up of bundled mortgages which turned toxic as homeowners defaulted, triggering a chain of events that led to a credit crunch and taxpayers having to rescue banks.
Dominic Crawley, managing director at S&P, said the agency had expressed regret over the optimistic assumptions built into ratings of the U.S. subprime products.
Fitch group managing director Paul Taylor said that he absolutely apologises for what happened with structured products, but saw no reason to apologise for other areas of its business which he said did not go wrong.
World leaders agreed in 2009 that, because of the crisis, rating agencies should be directly supervised, and also told regulators to reduce the role of ratings in capital markets.
They are widely used by banks to calculate capital buffers and rate financial products, and by funds to base investment decisions.
The European Union is going a step further and has proposed forcing users of ratings to rotate or switch to another agency, after a set number of years, in a bid to encourage competition in a sector dominated by the Big Three: S&P, Moody's and Fitch.
Alan Reid, managing director Europe at DBRS, a Canadian agency trying to build market share in Europe, said rotation would provide diversity of ratings, reduce risks from market concentration and increase competition.
But S&P's Crawley said rotation would risk generating volatile ratings when the switch took place and was a blatant hindrance to normal competition.
Moody's Drevon warned rotation would allow rivals to pick up business, irrespective of quality, and encourage ratings shopping as issuers select a new agency that would likely give them a better rating.
There was no short-term solution to boost competition, Taylor said, adding it took Fitch years of knocking on doors and heavy investment to build up market share to 17 percent, still well behind Moody's and S&P at around 40 percent each.
Lawmakers accused the agencies of having been part of a racket by playing along with the banks in giving high ratings to the securitised products as long as the money was so good.
Certainly not, Drevon said.
Taylor agreed there was a herd mentality before the crisis and that Fitch had not accounted for changes in behaviour -- such as U.S. homeowners handing back the keys of their property -- that could influence ratings.
There is no guarantee that we wouldn't miss something again in the future, Taylor said.
The representatives of the rating agencies were unable to say what percentage of U.S. structured products had to be downgraded or if people were fired for their ratings mistakes.
It should be burned on your mind, given you got it so wrong, said Conservative MP David Ruffley.
(Editing by David Hulmes)