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Credit Rating Agencies

Author

Listed:
  • Jakob de Haan
  • Fabian Amtenbrink

Abstract

This paper critically reviews the debate on CRAs and, in the light thereof, analyses the European regulatory approach to CRAs, thereby combining insights from economics and law. We first provide some basic background on the function of CRAs. Thereafter, we focus on the two main tasks for which CRAs have come under criticism, namely the issuing of sovereign ratings and the rating of structured instruments. Finally, we zoom in on the question of whether and how CRAs should be regulated given their function, focusing on recent European legislation that aims to standardize the conduct of CRAs.

Suggested Citation

  • Jakob de Haan & Fabian Amtenbrink, 2011. "Credit Rating Agencies," DNB Working Papers 278, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:278
    as

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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20278_tcm46-246556.pdf
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    Other versions of this item:

    • Jakob De Haan & Fabian Amtenbrink, 2011. "Credit Rating Agencies," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 19 Edward Elgar Publishing.

    References listed on IDEAS

    as
    1. Rosa M. Lastra & Dr Rosa Lastra, 2003. "The Governance Structure for Financial Regulation and Supervision in Europe," FMG Special Papers sp149, Financial Markets Group.
    2. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
    3. Marco Pagano & Paolo Volpin, 2010. "Credit ratings failures and policy options," Economic Policy, CEPR;CES;MSH, vol. 25, pages 401-431, April.
    4. Sy, Amadou N. R., 2002. "Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals," Emerging Markets Review, Elsevier, vol. 3(4), pages 380-408, December.
    5. Arnoud W. A. Boot & Todd T. Milbourn & Anjolein Schmeits, 2006. "Credit Ratings as Coordination Mechanisms," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 81-118.
    6. Hill, Paula & Brooks, Robert & Faff, Robert, 2010. "Variations in sovereign credit quality assessments across rating agencies," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1327-1343, June.
    7. Gande, Amar & Parsley, David C., 2005. "News spillovers in the sovereign debt market," Journal of Financial Economics, Elsevier, vol. 75(3), pages 691-734, March.
    8. Al-Sakka, Rasha & ap Gwilym, Owain, 2009. "Heterogeneity of sovereign rating migrations in emerging countries," Emerging Markets Review, Elsevier, vol. 10(2), pages 151-165, June.
    9. Ronald Heijmans & Richard Heuver & Daniëlle Walraven, 2011. "Monitoring the unsecured interbank money market using TARGET2 data," DNB Working Papers 276, Netherlands Central Bank, Research Department.
    10. Utzig, Siegfried, 2010. "The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective," ADBI Working Papers 188, Asian Development Bank Institute.
    11. Alsakka, Rasha & ap Gwilym, Owain, 2010. "Leads and lags in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2614-2626, November.
    12. Bannier, Christina E. & Hirsch, Christian W., 2010. "The economic function of credit rating agencies - What does the watchlist tell us?," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3037-3049, December.
    13. Lawrence J. White, 2010. "Markets: The Credit Rating Agencies," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 211-226, Spring.
    14. Mora, Nada, 2006. "Sovereign credit ratings: Guilty beyond reasonable doubt?," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2041-2062, July.
    15. Siegfried Utzig, 2010. "The Financial Crisis and the Regulation of Credit Rating Agencies : A European Banking Perspective," Finance Working Papers 21990, East Asian Bureau of Economic Research.
    16. Ismailescu, Iuliana & Kazemi, Hossein, 2010. "The reaction of emerging market credit default swap spreads to sovereign credit rating changes," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2861-2873, December.
    17. Guttler, Andre & Wahrenburg, Mark, 2007. "The adjustment of credit ratings in advance of defaults," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 751-767, March.
    18. Brooks, Robert & Faff, Robert W. & Hillier, David & Hillier, Joseph, 2004. "The national market impact of sovereign rating changes," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 233-250, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dziawgo Danuta, 2012. "Present and Future Position of Credit Rating," Folia Oeconomica Stetinensia, De Gruyter Open, vol. 12(2), pages 160-174, December.
    2. Fuchs , Andreas & Gehring , Kai, 2013. "The Home Bias in Sovereign Ratings," Working Papers 0552, University of Heidelberg, Department of Economics.
    3. Bartels, Bernhard & Weder di Mauro, Beatrice, 2013. "A Rating Agency for Europe – A good idea?," CEPR Discussion Papers 9512, C.E.P.R. Discussion Papers.
    4. Chiwitt, Ulrich, 2014. "Ratingagenturen - Fluch oder Segen? Eine kritische Bestandsaufnahme," Arbeitspapiere der FOM 48, FOM Hochschule für Oekonomie & Management.
    5. Steffen Nauhaus, 2015. "The Power of Opinion: More Evidence of a GIPS-Markup in Sovereign Ratings During the Euro Crisis," Discussion Papers of DIW Berlin 1501, DIW Berlin, German Institute for Economic Research.
    6. Valerie Bösch, 2011. "Ratings in der Krise," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 110, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    7. Stéphane Rousseau, 2012. "A Question of Credibility: Enhancing the Accountability and Effectiveness of Credit Rating Agencies," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 356, July.

    More about this item

    Keywords

    Credit rating; regulation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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