International credit ratings agencies sometimes send signals to investors too late, European Central Bank board member Christian Noyer said on Tuesday, days after Fitch downgraded Spain as its government struggles to avoid a Greek-style debt crisis.
"For us, it's an enormous problem because it always happens at the wrong time," Noyer said during a panel discussion at a seminar in response to a question.
"They are not sending the signals at a certain point of time when it should be warranted but sending when it's too late, and increasing problems," he added.
The Greek crisis, which investors fear could spread to other weak euro zone states, has highlighted problems in the system under which the ECB accepts bonds as security for loans based on the judgment of major ratings agencies such as Standard & Poors, Moody's and Fitch.
Greece, Spain and Portugal have all seen their credit ratings cut in recent months as worries intensified about their heavy public debt. In the latest move, Fitch cut Spain's rating one notch on Friday, sending global markets reeling. [ID:nLDE64R25A]
European Union finance ministers are pushing the ECB to develop its own rating system for euro zone countries in the wake of Greece's crisis, the German business newspaper Handelsblatt reported earlier this year.
Noyer said major ratings agencies were sometimes simply taking information from financial markets which were already under stress, thereby increasing the problems, whereas they should provide precise information to the markets.
"Certainly I would consider the present situation as absolutely unsatisfactory," he added.
Noyer also defended the ECB's controversial decision last month to buy euro zone government bonds, reversing its long-standing opposition to propping up debt markets as fears grew that countries in southern Europe would follow Greece, plunging the global economy into another paralysing credit crunch.
"What changed … was simply that in a couple of days, and we know how quickly markets can change, was that the whole functioning of the important segments of the market was dramatically blocked," he said of the ECB's move, which was announced in conjunction with a $1 trillion EU-IMF rescue package for indebted euro zone states.
Noyer also said earlier in the day that central banks should try to prevent their policies from stimulating potential excessive risk-taking that would increase insolvencies in the event of an asset price bubble bust.
"At the least, central banks should avoid that their policies stimulate potential excessive risk-taking, which although benign in good times, increases the scale of insolvency in the event of an asset price reversal," he said.
Like other major central banks, the ECB slashed interest rates during the global financial crisis in a bid to spur economic growth, but economists warn keeping borrowing costs too low for too long will only stoke inflationary pressures.
Noyer also said there were big advantages in keeping financial supervision close to the central banks, which is a subject of controversy in some countries where central banks have no direct supervision over commercial banks.
"Central banks need to have an intimate knowledge of the banking system," he said.
