To understand the roots of the capital markets and the rating agencies I want to start this Bachelor Thesis with a historical development. With introduction of the Issuer Pays Model and the proclamation of so called NRSROs there is the starting point for a long time discussion within the credit rating industry. Then I want to introduce the case of Enron, a former energy conglomerate which has been wrongly rated by the rating agencies.
I want to investigate if there are any parallels to the crisis of 2007. I also want to understand and show the reasons and the structure of the crisis of 2007. So I will introduce the Subprime market and structured finance, as these topics were probably the triggers for the crisis. The main part of my thesis is to find an explanation for the performance of the credit rating agencies. I use a theoretical model which stresses the complexity of assets. The model says that the more complex an asset is, the harder it is to rate for the agencies.
In opposite to that I want to compare the results of the theoretical model with an empirical study. I want to investigate if the theoretical model gets the same result as the empirical approach or if there are huge differences. At last I want to introduce some solution proposals by myself and think about further approaches.
Table of Contents
List of Illustrations
List of Abbreviations
1 Introduction
2 Historical Development of the Rating Agencies and Recent Problems
2.1 Years of Foundation
2.2 The Issuer Pays Model
2.3 Nationally Recognized Statistical Rating Organization
2.4 Recent Rating Problems- The Case of Enron
3 The Financial Crisis 2007 - ?
3.1 Reasons
3.1.1 The Subprime Market
3.1.2 Structured Finance
3.2 The Development
4 The Role of the Rating Agencies- A Model trying to explain
4.1 Ratings Shopping and Asset Complexity
4.2 List of Literature
4.3 A Model of an Asset Auction and a Market for Ratings
4.4 Mandatory Disclosure of Shadow Ratings
4.5 Voluntary Disclosure
4.5.1 The Disclosure Decision
4.5.2 The Acquisition Decision
4.6 The Main Results of the Theoretical Model
4.6.1 The complexity of assets raises the incentive to shop for ratings
4.6.2 Complexity affecting ratings bias
4.6.3 Issuer might prefer more complex assets
4.7 An Empirical Dispute
5 Proposed Solutions and Further Perspectives
6 Conclusion
Appendix I: Global CDO Issuance ($millions)
Appendix II: Sample Cash Structured Finance CDO Structure
Appendix III: Numerical Example of Ratings Shopping
References
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Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
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Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
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