Harold Cole, Thomas F Cooley, 22 June 2014, voxeu
One of the casualties of the financial crisis has been the reputation of the major credit rating agencies. To many, the problem with the credit ratings business seems obvious:
- The ‘issuer-pays’ market structure, in which the issuers pay the agencies to rate their debt instruments, distorts incentives.
The issuers want higher ratings to lower their cost of borrowing, and can shop among raters to get higher ratings (Pagano and Volpin 2010). Seems obvious, right?
Serious analysis and attention to history suggests that market structure is the wrong problem to focus on.
Our recent research argues that the main problem with the ratings industry is the government’s use of ratings for regulatory purposes (Cole and Cooley 2014). Den Rest des Beitrags lesen »