IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/105.html
   My bibliography  Save this paper

Rating risks: risk and uncertainty in an opaque industry

Author

Listed:
  • Donald P. Morgan

Abstract

The pattern of disagreement between bond raters suggests that bank and insurance firms are inherently more opaque than other firms. Moody's and Standard and Poor's split more frequently over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from their assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. Our findings bear on both the existence and reform of bank regulation.

Suggested Citation

  • Donald P. Morgan, 2000. "Rating risks: risk and uncertainty in an opaque industry," Staff Reports 105, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:105
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr105.html
    Download Restriction: no

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr105.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bonaccorsi di Patti, Emilia & Dell'Ariccia, Giovanni, 2004. "Bank Competition and Firm Creation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 225-251, April.
    2. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 733-771.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. Krasa, Stefan & Villamil, Anne P, 1992. "A Theory of Optimal Bank Size," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 725-749, October.
    5. Peter C. Reiss, 1989. "Economic and Financial Determinants of Oil and Gas Exploration Activity," NBER Working Papers 3077, National Bureau of Economic Research, Inc.
    6. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    7. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    8. Mark S. Carey & Stephen D. Prowse & John Rea, 1993. "Recent developments in the market for privately placed debt," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 77-92.
    9. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
    10. Donald P. Morgan & Kevin J. Stiroh, 1999. "Bond market discipline of banks: is the market tough enough?," Staff Reports 95, Federal Reserve Bank of New York.
    11. Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-331, March.
    12. Hannan, Timothy H & Hanweck, Gerald A, 1988. "Bank Insolvency Risk and the Market for Large Certificates of Deposit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 203-211, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bank assets ; Credit ratings ; Risk;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:105. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.