EU set to ban credit ratings for bailed out nations

European regulators may be given new powers to suspend credit ratings of countries seeking or undergoing bailouts to prevent the "negative spillover effects to other countries", according to proposals for tougher regulation issued by the European Commission.

ESMA, the European markets regulator, would be able to approve ratings methods and ban sovereign ratings in "exceptional situations" to avoid market fall out, according to draft proposals seen by the FT. The draft reads: "In order to prevent that credit rating agencies issue sovereign ratings which do no accurately reflect the situation of the country concerned and would cause negative spillover effects to other countries, ESMA should be granted the power to temporarily restrict the issuance of credit ratings in exceptional, precisely defined situations," the draft argues. Among other...