Handbook of Central Banking, Financial Regulation and Supervision
Show Less

Handbook of Central Banking, Financial Regulation and Supervision

After the Financial Crisis

Edited by Sylvester Eijffinger and Donato Masciandaro

This stimulating and original Handbook offers an updated and systematic discussion of the relationship between central banks, financial regulation and supervision after the global financial crisis.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 19: Credit Rating Agencies

Jakob De Haan and Fabian Amtenbrink


Jakob De Haan1 and Fabian Amtenbrink Introduction Since John Moody started in 1909 with a small rating book, the rating business has developed into a multi-billion dollar industry. Credit rating agencies (CRAs) play an important role in financial markets through the production of credit risk information and its distribution to market participants. Issuers, investors and regulators use the information provided by rating agencies in their decision-making. For instance, sovereigns seek ratings so that they can attract foreign investors. Likewise, ratings of structured products have been a key factor in the development of the originate-to-distribute model.2 Credit ratings also play an important role in financial market regulation. For instance, under Basel II financial institutions can use credit ratings from approved agencies when calculating their capital requirements. CRAs essentially provide two services. First, they offer an independent assessment of the ability of issuers to meet their debt obligations, thereby providing ‘information services’ that reduce information costs, increase the pool of potential borrowers, and promote liquid markets. Second, they offer ‘monitoring services’ through which they influence issuers to take corrective actions to avert downgrades via ‘watch’ procedures.3 CRAs have come under attack due to their role in the recent financial crisis. According to many observers, CRAs underestimated the credit risk associated with structured credit products. For instance, according to the International Monetary Fund (IMF), more than three 1 The views expressed do not necessarily reflect the views of De Nederlandsche Bank 2 IMF (2010). 3 Ibid. 573 574 The Architecture of Regulation and...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.