RETHINKING CREDIT RATING AGENCIES ROLE IN CONTEMPORARY FNANCIAL SYSTEMS

Anita Pavkovic () and Davor Vedris ()
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Anita Pavkovic: Faculty of Economics and Business Zagreb

Economic Thought and Practice, 2011, vol. 20, issue 1, 225-250

Abstract: Credit rating agencies today are playing a significant role in well developed global securities and banking markets. Their primary goals are providing independent, objective and high quality ratings to all interested financial services beneficiaries. Market participants (like commercial banks, investment funds, insurance companies, pension funds, other institutional investors and companies), have embedded credit ratings in their investment and credit assessment frameworks. As the markets evolved and became more complex, credit rating agencies were expected to cover an evaluation of wider range of financial instruments and connected risks. Most sophisticated ratings users in recent years did not undertake own due diligence work, but rather outsource their credit risk management to rating agencies and relied on ratings which consequently caused enormous damages and losses in financial systems all around the world. The aim of the paper is to introduce basic limitations in intensive use of credit ratings in investment and banking policies and to give global professional and scientific literature an overview on the positive and negative impacts of their future use.

Keywords: credit rating agency; rating scale; rating methodology; regulation; transparency (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2011
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