The Liability of Credit Rating Agencies: A Contractual Solution

Alessio M. Pacces, Alessandro Romano and Angela Troisi

Mercato Concorrenza Regole, 2014, issue 3, 571-590

Abstract: There is a widespread consensus that Credit Rating Agencies have systematically inflated their ratings. In this paper, we analyze how the European regulator has addressed this issue. Specific attention is paid to the legislative framework introduced by the Reg. (Ec) no. 1060/2009, the Reg. (Eu) no. 513/2011, and the Reg. (Eu) no. 462/2013. We argue that these regulations are inadequate to provide Cras with the correct incentives. In this vein, we suggest the introduction of a mitigated version of strict liability rule. We develop specific mechanisms to protect Cras from systemic risk, to limit their liability, and to allow them to choose how much to «bet» on their own predictions.

Keywords: Law & Economics; Financial Regulation; Rating Inflation; Credit Rating Agencies; Imperfect Foresight; Systemic Risk; Structured Finance. (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mul:jhpfyn:doi:10.1434/79257:y:2014:i:3:p:571-590

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