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ECB Moves to Protect Portugal's Banks

Wall Street Journal - Jul 7, 2011

The European Central Bank took steps to protect Portugal's banking system after Moody's Investor's Service cut the country's debt cut to junk status.

The ECB said it would indefinitely suspend existing rules that require at least one investment-grade rating by a major rating agencies in order to accept government bonds as collateral for ECB loans.

Though Portugal still meets those requirements even after the Moody's downgrade, the suspension removes any uncertainty if other agencies follow suit in coming weeks.

Portugal's banks rely on the ECB for liquidity and if the central bank hadn't relaxed its rules, the country's banks would have been threatened.

The ECB decision comes as criticism in Europe mounts over the decision by Moody's and, more broadly, the central role rating agencies are playing in Europe's escalating debt crisis. European leaders have renewed calls for less reliance on the three major rating agencies: Moody's, Standard & Poor's and Fitch Investors Service.

Read Full Article from Wall Street Journal

- Posted: 2011-07-07 14:42:56

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