Regulatory Regimes and Liability Issues
Chapter 4: THE US REGIME
Chapter 4 examines the US system of authorization and recognition of CRAs as Nationally Recognized Statistical Rating Organization (NRSRO). The importance of this discussion lies in the significant role authorized by the NRSRO in allowing the use of ratings within the regulatory framework. By conferring on ratings the power to determine the credit risk of assets, the NRSRO incautiously placed much reliance on CRAs’ activities. This chapter also addresses the major issues that the system of the NRSROs brought into being within the ratings industry. These included barriers to entry, poor competition and overreliance by regulators. It is argued that the creation and development of an NRSRO system has provided ratings with the status of special label for the quality of debt instruments.
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