This assignment analyses the impact of Credit Rating Agencies on the financial market focusing on corporate institutions. In the case of Enron, a former American energy, commodities and services company, it received good credit ratings up until four days before bankruptcy. Other examples like Lehman Brothers or WorldCom show, that Moody's, S&P and Fitch still rated these companies as safe investments days before their bankruptcy. Credit Rating Agencies influence about 80% of the world market capital. The industry is dominated by S&P and Moody's which lead to a lack of competition.
Ratings have an impact on the overall economic performance, recently proofed by the financial crisis caused in the US subprime mortgage market. The conflict of interest occurs from the issuer-pay model where almost all credit ratings are paid by the issuer of the instrument. CRAs are governed by the International Organization of Securities Commissions (IOSCO) which established a "Code for Conduct Fundamentals" for CRAs, a voluntary code without enforcement mechanisms.
Authorities have responded with a range of regulatory reforms. There is currently no consensus on a common set of reform. The overall rating agencies do not take any responsibility for damage caused to governments or investors.
Table of Contents
Executive Summary
Table of Contents
List of Abbreviations & Symbols
List of Tables
1 Introduction
1.1 Problem Definition and Objective
1.2 Scope of Work
2 Background on Credit Rating Agencies
2.1 Definition, Purpose and Function
2.2 Structure of Credit Rating Process
2.3 Market Structure of Credit Rating Agencies
3 Impact of Credit Rating Agencies in the financial world
3.1 The Collapse of Enron and other examples
3.2 Critical Analysis of CRAs
3.3 Learnings and regulatory solutions
4 Conclusion and Outlook
Bibliography
- Quote paper
- Alexej Eichmann (Author), 2015, Credit Rating Agencies. What Impact Do They Have and Do We Really Need Them?, Munich, GRIN Verlag, https://www.grin.com/document/309320
-
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X.