Do you agree with the given view and explain your views

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One of your credit colleagues mentions that one of the major drawbacks of the Basel Accords is the excessive reliance on ratings (AAA, AA, BBB, etc.) by external rating agencies to decide the risk weighted assets and hence influencing the quantum of capital to be maintained against such assets. Since external rating agencies have no direct stake in the deal, he argues that it is not logical to commit vast amounts of funds into riskier transactions based on third party ratings. If the Basel Accords want an external rating, it must be done by a rating agency established and supervised by the Basel Committee. Do you agree with this view? Explain your views.

Reference no: EM13924892

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