DAVOS-HIGHLIGHTS-Key quotes on financial risk

DAVOS, Switzerland, Jan 25 (Reuters) - Following are highlights of comments by participants at the World Economic Forum on financial risk:

RAYMOND MCDANIEL, CHAIRMAN AND CEO, MOODY'S:

"A lot of things could have been done better - some are the responsibility of rating agencies, some of other participants in the market.

"In hindsight it is pretty clear to us there was a failure in some key assumptions supporting our analytics and our models. The key assumptions failed in part because the information policy - completeness and veracity - feeding the work agencies were doing, was deteriorating.

"The history demonstrates that investment grade structured products have demonstrated lower average loss than similarly rated corporate loss. But loss distribution for structured products has been different.

"We are currently regulated by the US SEC. We are also subject to reviews on a voluntary basis and various national regulatory authorities around the world.

"The defence (to accusations of opacity) is we publish our models - people can agree, disagree, disregard the assumptions in those models. The transparency is there and is publicly available.

"Some of the losses or writedowns are a recognition of a problem in the model.

"A downgrade, while it causes...a trading loss to someone selling on the secondary market, does not affect underlying quality.

"You may see large amounts of writeups as the market stabilises.

"By analogy, if rating agencies were rating houses, we would be rating structural soundness of the house -- but many other things go into the value of the house; We are only measuring its structural soundness.

"I want the institutional investor community to use our ratings, but if the only choice is to look to rating agencies, it makes us more necessary and less effective."

GUILLERMO ORTIZ, GOVERNOR OF CENTRAL BANK OF MEXICO:

"I have been through more financial crises than I care to remember, and they all share common features.

"One thing that is common to all crises is the lack of transparency. "The Asian crisis...huge complaints about the lack of transparency, and the same is happening today.

"Perhaps the transparency issue this time. The complexity of the products and financial innovation made it more difficult -- even the regulators failed to understand. It was an exercise in collective confusion.

"Confidence has been lost and confidence must be restored."

MALCOLM KNIGHT, GENERAL MANAGER AND CEO, BANK FOR INTERNATIONAL SETTLEMENTS, BIS:

"Big financial imbalances can blow up even when inflation is low and growth is strong. What goes up must come down.

"What we are seeing now in the system is deleveraging, and deleveraging is always painful.

"In the area of disclosure and producing more information, what is really needed is for rating agencies to show some of the other things they do.

"There clearly was a lot of abuse and weak underwriting standards in the subprime mortgage market in the United States.

"The mortgage originators are not financial institutions and as such are not regulated.

"The problem really is the balkanisation of regulation - fragmented across market segments, across national juristidctions and yet we want to have a global financial system.

"That is a major challenge for regulators but it is a very important one.

"The Fed was among the first institutions to really sound the alarm in terms of saying explicitly that there were problems in loan origination.

"We are in the middle of this situation and it is not easy.

"I believe that on balance the innovation in the financial system has been very positive for world growth and the stability of the system.

"That said there are a number of lines that are coming though here.

"There has to be an improvement of risk management - particularly lquidity risk nmanagement.

"Part of the challenge has been that as regulation of financial insitutions has become more refined, it has inadvertendly created incentive for regulatory arbitrage.

"The regulation needs to be more consistent in such a way so that the same risk gets treated the same way no matter what insititution is holding it."

WALTER KIELHOLZ, CHAIRMAN OF BOARD OF DIRECTORS, CREDIT SUISSE:

"I think we are now in a situation where we are trying to find a new equilibrium. The most real challenge is we do not know what the damage to the underlying product is.

"I see a certain risk that those that were not damaged when the waves came in will be damaged when the waves go out.

"I have dealt with rating agencies for 15 years and a lot has changed. Before, when they had a question, we told them to read the annual report. Then the work became more sophisticated.

"This is a duopoly - two large rating agencies, they act very often in sync, they control this whole business.

"I am not so sure whether the whole time discipline was maintained - or could have been maintained -- growth was so fast."

For full coverage, blogs and TV from Davos see: here (Reporting by Clara Ferreira-Marques; Editing by Sue Thomas)