scholarly journals Lessons from the Financial Crisis: New Rules for Central Banks and Credit Rating Agencies?

2008 ◽  
Vol 43 (5) ◽  
pp. 256-266 ◽  
Author(s):  
Paul De Grauwe ◽  
Thomas Mayer ◽  
Karel Lannoo
Keyword(s):  
Financial Crisis ◽  
Credit Rating ◽  
Central Banks ◽  
Credit Rating Agencies ◽  
Rating Agencies

Part II The Financial Crisis of 2007–2011, 6 Market and Regulatory Failure

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Credit Risk ◽  
Financial Market ◽  
Credit Rating ◽  
Third Party ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Market Participants ◽  
Regulatory Failure

This chapter first discusses the origins of the financial crisis, highlighting practice of ‘packaging and selling’ credit risk by financial market participants that led up to the crisis. It argues that although, in retrospect, many aspects of that practice look very bad indeed, the idea that banks might originate a credit exposure and then transfer the credit risk attached to it to a third party was, before the financial crisis, considered to be part and parcel of sound risk management. The discussion then turns to credit-rating agencies. Analysis of the financial crisis and ‘what went wrong’ has shown that rating agencies were too generous with their rating of many of the structured products that contributed to the collapse.

scholarly journals Repeated Interaction and Rating Inflation: A Model of Double Reputation

2015 ◽  
Vol 7 (1) ◽  
pp. 250-280 ◽  
Author(s):  
Sivan Frenkel
Keyword(s):  
Financial Crisis ◽  
Credit Rating ◽  
Cheap Talk ◽  
Policy Implications ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Repeated Interaction ◽  
Recent Financial Crisis

Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as markets for structured assets, these incentives may lead rating agencies to inflate ratings as a strategic tool to form a “double reputation.” The model extends the existing literature on “cheap-talk” reputation to the case of two audiences. Our results can explain why rating inflation occurred specifically in markets for MBSs and CDOs during the recent financial crisis. Policy implications are discussed. (JEL D82, G01, G12, G24, G32)

scholarly journals A hard nut to crack: Regulatory failure shows how rating really works

2019 ◽  
Vol 23 (3) ◽  
pp. 266-286 ◽  
Author(s):  
Giulia Mennillo ◽  
Timothy J Sinclair
Keyword(s):  
Financial Crisis ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Third Party ◽  
Credit Rating Agencies ◽  
Private Goods ◽  
Rating Agencies ◽  
Rating Agency ◽  
Before And After ◽  
The Global Financial Crisis

Credit rating agencies such as Moody’s and Standard & Poor’s are key players in the governance of global financial markets. Given the very strong criticism the rating agencies faced in the wake of the global financial crisis 2008, how can we explain the puzzle of their survival? Market and regulatory reliance on ratings continues, despite the shift from a light-touch to a mandatory system of agency regulation and supervision. Drawing on the analysis of rating agency regulation in the US and the EU before and after the financial crisis, we argue that a pervasive, persistent and, in our view, erroneous understanding of rating has supported the never-ending story of rating agency authority. We show how treating ratings as metrics, private goods, and independent and neutral third-party opinions contributes to the ineffectiveness of rating agency regulation and supports the continuing authoritative standing of the credit rating agencies in market and regulatory practices.

scholarly journals Does the Percentage of Investment Grades Given by Rating Agencies Impact their Market Share?

2020 ◽  
Vol 4 (1) ◽  
pp. 5-31
Author(s):  
Muhammad Adnan Aslam
Keyword(s):  
Growth Rate ◽  
Financial Crisis ◽  
Market Share ◽  
Credit Rating ◽  
General Analysis ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Quality Ratings ◽  
The Impact ◽  
The Relationship

The credit rating industry has controlled by three core credit rating agencies; Fitch, Moody’s, and S&P that are contributing to financial markets by providing reliable and transparent credit rating information on which stakeholders can rely. These key players could manipulate this information by allocating high percentages of quality ratings just for the sake of increasing their market shares. This research is conducting to examine the impact of assigning the percentage of investment grades given by CRA’s on their market share. This research will attain following objectives: firstly, to identify quality ratings assigned for each set of top banks from UK & USA and categories them yearly; secondly, to examine their market share on the basis of percentage of IG grade given; thirdly, to access the modeling and impacts of the financial crisis on the market share of CRA’s; finally, to determine the relationship between CRA’s market share and percentage of IG given. This research gives a detailed analysis of the percentage of IG assigned by CRA’s and their market share which consists of general analysis and econometric analysis. Moreover, the research methodology is a quantitative method for achieving all research objectives. For general analysis, we make a comparative study to find the impacts of high-quality ratings against their market share and evaluate the growth rate in their market share. Whereas, for econometrics analysis, we regress the market share of CRA’s against the percentage of investment grades given and use lagged variables to understand the changes in market share. Besides, this allows us to find the relationship between CRA’s and the percentage of IG given. Hence, the results from both analyses have exposed that there is a positive correlation between CRA’s market share and the percentage of IG given. It is revealed that there is an increase in the market share of CRA’s on assigning a high percentage of IG given by CRA’s and a negative growth rate shown in market share for those years in which they allocate less number of quality ratings. However, due to financial crisis and adjustment in credit rating standards, there is a general fall in the number of ratings assigned by CRA’s which very influences their market share. Keywords: investment grades; market share; credit rating agencies; financial crisis; modeling of banks ratings.

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