Since the financial crisis in 2008, rating agencies are in the spotlight. Often they were blamed by politicians and economists for causing the crisis, because they rated some financial products with an excellent grade, without exactly knowing what was really behind these products. To understand why and how Credit Rating Agencies like Standard & Poors, Fitch and Moody's rate, we have to look closer at the CRA and their rating in order to understand how they work. In this research paper I will take a critical look at these institutions. I will talk about the independence of these global oriented enterprises and I will analyze their impact on the financial market and the politics in order to demonstrate why they are so powerful like quoted above.
Inhaltsverzeichnis (Table of Contents)
- Introduction.
- What are Credit Rating Agencies?
- Raison d'être.
- Conflicts
- Methodology..
- Conflict of Interest.
- Profit Maximization...
- Oligopoly market.
- Economic Relevance of a Downgrade..
- Role of credit Rating Agencies in politics and the financial market..
- Regulatory Power
- Influence on political sciences...
- Conclusion......
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This research paper critically examines the independence and influence of credit rating agencies (CRAs), focusing on the impact of their ratings on the financial market and political landscape. The paper investigates the role of CRAs in the wake of the 2008 financial crisis and analyzes how these agencies operate in an oligopoly market. This research utilizes information from two books and an essay to demonstrate the significant power of CRAs.
- The independence and influence of credit rating agencies.
- The role of CRAs in the financial market, including their impact on investors and the issuance of bonds.
- The relationship between CRAs and their clients, including potential conflicts of interest and regulatory concerns.
- The power of CRAs within the political landscape and their influence on policies.
- The oligopoly structure of the CRA market and its implications for competition and regulation.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter provides a brief overview of the role and influence of credit rating agencies, particularly in the aftermath of the 2008 financial crisis. It highlights the significant power of agencies like Moody's and Standard & Poors, emphasizing their ability to impact both businesses and political decisions. The introduction also outlines the scope of the paper, including the focus on agency independence and their impact on the financial market and politics.
- What are Credit Rating Agencies?: This section dives into the history of rating agencies, tracing their origins back to Henry Varnum Poor who first evaluated American Railroad companies in the 1860s. The chapter explains how rating agencies have evolved to rate a wide range of entities and products, from firms and stocks to states and investment products. It also explores different definitions of credit ratings, highlighting the varying approaches used by agencies like Moody's and the significance of rating scales.
- Raison d'être: This chapter delves into the purpose and function of credit rating agencies, explaining why they are crucial players in the financial market. It discusses how these agencies benchmark default likelihoods and provide investors with valuable insights into the creditworthiness of entities and products. The chapter also explores the importance of investment grade ratings and how agencies use matrices and grading scales to evaluate different securities.
- Conflicts: This section examines various potential conflicts of interest and challenges faced by credit rating agencies. It explores the methodology used by agencies, highlighting potential biases and discrepancies. The chapter also delves into the concept of profit maximization within the CRA market and the implications of an oligopoly structure, where a limited number of agencies dominate the industry. Furthermore, it discusses the economic relevance of a downgrade, the implications for the financial market, and the potential risks associated with reliance on CRA ratings.
Schlüsselwörter (Keywords)
Key concepts and topics explored in this research paper include credit rating agencies, independence, influence, financial market, political landscape, oligopoly market, regulatory concerns, conflicts of interest, and the impact of ratings on investor behavior and policy decisions. These themes are further explored through the examination of specific agencies like Moody's, Standard & Poors, and Fitch, along with key figures such as Henry Varnum Poor and Dr. Deniz Coskun.
- Citation du texte
- Jochen Schweizer (Auteur), 2011, The independence of rating agencies, Munich, GRIN Verlag, https://www.grin.com/document/283241
