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Is a European rating agency sensible, and how should it be organised?

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Listed:
  • Erich Harbrecht
  • Martin Wieland
  • Ralf Elsas
  • Ottmar Schneck

Abstract

The mistakes of the dominating US rating agencies have led to calls for setting up a large European rating agency. Erich Harbrecht and Martin Wieland, Deutsche Bundesbank, do not think it wise to set up a counterpart to the US agencies. The misjudgements of the rating agencies regarding structured financial products were "method and product specific" and were not particularly characteristic of individual regions. What is important is general conditions that are consistent internationally, which, independent of the national base of the agencies, promote incentives for high quality in the preparation of rankings. Also the users of ratings - investors and regulators - are called on to reconsider their use of ratings. For Ralf Elsas, University of Munich, a regulation of rating agencies is necessary that creates transparency with regard to their business activities, remuneration structures and the qualities of the rating product. For the necessary supervision of the rating agencies, expanded disclosure obligations vis-à-vis the public and the regulators are indispensable. A rating testing service (Rating-TÜV) should be created. For Ottmar Schneck, University of Reutlingen, it is not a matter of the organisation of rating agencies, nor is the size and internationality of the agency decisive when the focus is placed on the quality of the process. For this reason the emphasis should be on the validity, reliability and objectivity of the rating processes.

Suggested Citation

  • Erich Harbrecht & Martin Wieland & Ralf Elsas & Ottmar Schneck, 2010. "Is a European rating agency sensible, and how should it be organised?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(01), pages 03-11, January.
  • Handle: RePEc:ces:ifosdt:v:63:y:2010:i:01:p:03-11
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    References listed on IDEAS

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    1. Bo Becker & Todd Milbourn, 2008. "Reputation and competition: evidence from the credit rating industry," Harvard Business School Working Papers 09-051, Harvard Business School, revised Sep 2010.
    2. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2012. "The Credit Ratings Game," Journal of Finance, American Finance Association, vol. 67(1), pages 85-112, February.
    3. Efraim Benmelech & Jennifer Dlugosz, 2010. "The Credit Rating Crisis," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 161-207, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Paul J.J Welfens, 2010. "Rating, Kapitalmarktsignale und Risikomanagement: Reformansätze nach der Transatlantischen Bankenkrise," EIIW Discussion paper disbei175, Universitätsbibliothek Wuppertal, University Library.

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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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