Markets: The Credit Rating Agencies.¶
White, L. J. (2010). Markets: The Credit Rating Agencies. Journal of Economic Perspectives, 24(2), 211-226.
Cited by¶
3 citations across 3 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Certification
- In financial markets, rating agencies certify creditworthiness and auditors attest financial statements.
This sourceAnalyzes the issuer-pays credit-rating model: structured securities rated for the issuers who paid, ratings-shopping for soft grades, and the role of inflated ratings in the 2008 crisis.
Supported in partVerified against the publisher's abstract
White's abstract supports only the ratings half — regulators outsourced bond-creditworthiness judgments to Moody's, S&P and Fitch — and says nothing about auditors attesting financial statements.
“the series of events that led financial regulators to outsource their judgments to the credit rating agencies (by requiring financial institutions to use the specific bond creditworthiness information that was provided by the major rating agencies)”
- In financial markets, rating agencies certify creditworthiness and auditors attest financial statements.
- Evaluative Rating
- Financial risk substrates run on it: sovereign and corporate credit grades (Aaa…C), consumer credit scores, insurance underwriting tiers.
This sourceAnalyzes credit rating agencies, ordered letter-grade scales for sovereign and corporate default risk, the issuer-pays incentive conflict, and the regulatory hard-wiring of ratings into permissible-holding thresholds.
Supported in partVerified against the publisher's abstract
The abstract supports one clause only: regulators hard-wired credit rating agencies' bond creditworthiness grades into permissible-holding rules; it says nothing about sovereigns, consumer credit scores, or insurance tiers.
“the series of events that led financial regulators to outsource their judgments to the credit rating agencies (by requiring financial institutions to use the specific bond creditworthiness information that was provided by the major rating agencies)”
- Financial risk substrates run on it: sovereign and corporate credit grades (Aaa…C), consumer credit scores, insurance underwriting tiers.
- Signal Devaluation
- Ratings inflation. The pre-2008 expansion of AAA ratings on structured products eroded AAA's informativeness about default risk, with recipients adapting only after the failure.
This sourceAnalyzes how the issuer-pays model and the pre-2008 expansion of AAA ratings on structured products eroded the informativeness of top ratings.
Supported in partVerified against the publisher's abstract
White's abstract documents the shift to issuer-pays and the raters' part in the subprime debacle, but never mentions platform rating design, inflation pressure, or recipient-pays remedies.
“when the credit rating agencies shifted their business model from “investor pays” to “issuer pays.” … One route would tighten the regulation of the rating agencies, while the other route would reduce the required centrality of the rating agencies”
- Ratings inflation. The pre-2008 expansion of AAA ratings on structured products eroded AAA's informativeness about default risk, with recipients adapting only after the failure.
Verification¶
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