Intensified Competition and The Impact on Credit Ratings in the RMBS market

Vivian M. van Breemen, Frank J. Fabozzi and Dennis Vink

Financial Markets, Institutions & Instruments, 2023, vol. 32, issue 2, 51-86

Abstract: In this paper, we empirically investigate the impact of intensified competition on rating quality in the credit rating market for residential mortgage‐backed securities (RMBS) in the period 2017–2020. We provide evidence that competition between large credit rating agencies (CRAs) (Moody's and Standard & Poor's) and newer smaller ones (Dominion Bond Rating Service Morningstar and Kroll Bond Rating Agency) creates credit rating inconsistencies in the RMBS market. While a credit rating should solely represent the underlying credit risk of a RMBS, irrespective of the competition in the market, our results show that this is not the case. When competitive pressure is higher, both large and small CRAs tend to adjust their rating standards (smaller CRAs react to large CRAs and vice versa).

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/fmii.12170

Related works:
Working Paper: Intensified competition and the impact on credit ratings in the RMBS market (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:finmar:v:32:y:2023:i:2:p:51-86

Access Statistics for this article

More articles in Financial Markets, Institutions & Instruments from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().