Credit rating agencies have been under the spotlight since the beginning of the current financial crisis. They failed in their assessment of US residential mortgage- based securities in the mid-2000s. Nevertheless, investors generally consider credit ratings useful to help form their views on credit risks.
The global market for credit ratings is very concentrated, ostensibly as a consequence of high natural barriers to entry. All three leading rating agencies have headquarter functions in the US, but there is no compelling evidence that this has created an analytical bias.
Tighter regulation of rating agencies can be envisaged but is unlikely to have a material positive effect on ratings quality. Better standardised public disclosures on risk factors by issuers are the most promising avenue for future improvements in credit risk assessments.
This Policy Contribution is based on a briefing note for the Polish Presidency of the Council of the European Union.
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adrian 20th November 2011
Ratings are used to calculate credit risks under Basel II. Their macroeconomic impact is clear. We can follow the accouting regulation way in respect of risk reporting, there is no use to invent. There is a regulated set of accounting standards for reporting the financial PERFORMANCE. We can copy this frame to regulate the reporting of financial RISK. Information market exists, irrespective of what the Commission wish.
By the way, the actual proposals of the Commission financial regulation show that there are too many lawyers there and not enough economic minds.
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Michael Mainelli 15th November 2011
I might suggest a classic first response to most perceived market imperfections - transparency. However, this, and many articles, miss the idea that fee transparency could make a huge difference. If companies and public organizations are paying for credit ratings, then they can declare the payment in their accounts as they do for their audits. This initial response may well be enough to shed enough light that people either understand, or see as insignificant, the rating agency process. If the payment is huge for a good rating, while a comparable organisation (or government) has a similar rating for a lower payment, questions can be asked.
from - http://www.zyen.com/Articles/Balance%20Sheet%200803.pdf
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