The European Commission is to investigate credit ratings agencies amid growing dismay over their slow response to the subprime mortgage crisis.
Officials in Brussels and many other critics believe the ratings agencies failed to act quickly enough to warn investors about the risks of investing in securities backed by US subprime mortgages - the sector whose troubles triggered the recent global market volatility.
Banks first warned about a potential crisis in subprime last year. But it was only this spring that S&P and Moody's started downgrading the ratings of mortgage-backed securities on a significant scale.
"If the rating agencies believe this is going to be business as usual, they are very wrong," one commission official said.
"The securitised subprime mortgage market would not have grown to the extent that it did without the favourable ratings given by some agencies."
Charlie McCreevy, the EU internal market commissioner, has invited European securities regulators to meet in September to discuss ratings agencies and the problems that have surfaced with regard to rating structured products.
The ratings agencies have changed parts of their methodologies in response to the rapid rise in subprime mortgage payment problems. But they say downgrades and other actions follow once evidence has accumulated that mortgages or other assets are underperforming rather than on a speculative basis.
The commission is not committed to any course of action and is likely to await the outcome of a review of the International Organisation of Securities Commissions' code of conduct for ratings agencies, expected by April, before considering new regulation.
