The financial crisis and the credit rating agencies: the failure of reputation
This paper presents a theoretical framework to describe the behaviour of the credit rating agencies(CRAs) during the crisis, surveying some reputational game models. CRAs have been blamed of inflating ratings of the new credit risk transfer products (CRTs) and of acting in favour of issuers instead of investors. This paper addresses three key elements to explain CRAs conduct: misaligned incentives – also favoured by the increasing reliance on ratings - the oligopolistic structure of the ratings’ industry and the inadequacy of the credit risk models used by CRAs to evaluate CRTs. Some policy initiatives are finally suggested to restore market confidence in ratings and reduce the analyzed biases.
|Date of creation:||14 Dec 2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Mariano, Beatriz, 2008.
"Do reputational concerns lead to reliable ratings?,"
LSE Research Online Documents on Economics
24433, London School of Economics and Political Science, LSE Library.
- Beatriz Mariano, 2008. "Do Reputational Concerns Lead to Reliable Ratings?," FMG Discussion Papers dp613, Financial Markets Group.
- Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
- Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:48159. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.