Alternatives for issuer-paid credit rating agencies

Arbeitspapier

This paper investigates the economic viability and welfare contribution of alternatives to issuer-paid credit rating agencies (CRAs). To this end, it introduces a heterogeneous competition model for credit and ratings markets. Frictions among issuers or investors induce rating inflation from issuer-paid CRAs. Investor-paid CRAs suffer from three sources of free-riding and are generally not economically viable when competing with issuer-paid CRAs. Only for very limited parameter ranges can investor-paid CRAs thrive and counter rating inflation. Other proposed alternatives such as investor-produced ratings and CRA co-investments employ skin-in-the-game to induce proper screening accuracy. However, as traditional issuer-paid CRAs can cater better to issuers, such alternatives generate little demand or are implemented ineffectively. Hence, this paper provides an explanation for the evolution, dominance and resiliency of issuer-paid CRAs.

Angaben zum Objekt

• ISBN: 978-92-899-1111-5
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 1703

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financial Institutions and Services: Government Policy and Regulation ; Transactional Relationships; Contracts and Reputation; Networks
• Thema: competition ; credit rating agencies ; regulation ; reputation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bongaerts, Dion
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/154136
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ