These requirements could serve as a starting point for such discussion. Both these measures would help ensure that regulation that is designed to protect the real economy does not end up suffocating it. The impact of regulations is further aggravated by their reference to external credit ratings. Structured finance ratings in Europe have been very much negatively affected by the application of “sovereign ceilings”.
This practice leads to a situation where any sovereign rating downgrade often leads to at least a one-for-one reduction in the ratings of ABS in those markets, which in turn increases capital charges for investors and reduces the information content of ratings.