From Dr Rupert Macey-Dare.

Sir, Frank Partnoy's call to "do away with rating-based rules" for investment and regulation (Comment, July 9) glosses over the inconvenient fact that his preferred risk indicators based on average market prices and spreads can also be biased and misleading indicators of credit risk, particularly in conditions of liquidity constraint, bubbles, asymmetric information and speculation. Surely the better solution is for credit rating agency models to be upgraded to blend in market pricing information, where appropriate, through a feedback process. For example, where a much greater spread was demanded by investors than normal for other investments of that credit ratings, as in Prof Partnoy's benchmark example of constant proportion debt obligations paying "20 times the spread of other AAA-rated instruments", this could automatically trigger a progressive process of ratings watch and downgrade of the credit rating until the mismatch was resolved.