Structured Debt Ratings: Evidence on Conflicts of Interest
AbstractThis paper tests for conflicts of interest in the rating process of European asset- and mortgage-backed securities based on a new aggregation method for a deal's different tranche ratings. Controlling for a large set of determinants of credit risk, we find that credit rating agencies provide better credit ratings for the structured products of those issuers that provide them with more overall bilateral rating business. This effect is particularly pronounced in the run-up to the subprime crisis and for structured products with the worst collateral. Rating favors to the largest clients generate economically significant competitive distortion, foster issuer concentration and contribute to the "too big to fail" status of large issuer banks.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9465.
Date of creation: May 2013
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Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-24 (All new papers)
- NEP-BAN-2013-09-24 (Banking)
- NEP-RMG-2013-09-24 (Risk Management)
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