French President Nicolas Sarkozy and Europe’s financial regulator called for a probe into Moody’s Investors Service, Standard & Poor’s and other ratings firms criticised for underestimating the risk of subprime debt, reports Bloomberg from London.

Mr Sarkozy told German Chancellor Angela Merkel that the role of rating firms in both helping to create debt securities and assess their risk needs to be examined. EU Financial Services Commissioner Charlie McCreevy plans to review the governance, management, conflicts of interest and resources of the companies, spokeswoman Antonia Mochan said at a press conference in Brussels on Thursday.

Check bias
New York companies face scrutiny after failing to cut their ratings on bonds backed by subprime mortgages until July, when some of securities had already lost more than 50 cents on the dollar.

US Senate Banking Committee Chairman Christopher Dodd this month said regulators may need to ensure the rating services aren’t biased in their assessments of bonds because of fees they earn. “We have to ask ourselves the exact role rating agencies should play in mapping risks,” Mr Sarkozy said in a two-page letter dated Wednesday and released Thursday. “Their role, which allies the creation of these products and risk assessment should be submitted to a careful examination.”

Moody's, S&P and Fitch are the largest of six companies recognised by the US Securities & Exchange Commission as giving “credible and reliable” ratings.

Rating firms help borrowers structure debt securities in a way that will get highest possible credit rankings while allowing managers of securities the most profit, according to Columbia University Henry Kaufman Professor of Financial Institutions Charles Calomiris.