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Bank ratings: what determines their quality?

David Marques-Ibanez (), Harald Hau () and Sam Langfield ()

No 1484, Working Paper Series from European Central Bank

Abstract: This paper examines the quality of credit ratings assigned to banks in Europe and the United States by the three largest rating agencies over the past two decades. We interpret credit ratings as relative assessments of creditworthiness, and define a new ordinal metric of rating error based on banks' expected default frequencies. Our results suggest that rating agencies assign more positive ratings to large banks and to those institutions more likely to provide the rating agency with additional securities rating business (as indicated by private structured credit origination activity). These competitive distortions are economically significant and contribute to perpetuate the existence of JEL Classification: G21, G23, G28

Keywords: conflicts of interest; credit ratings; prudential regulation; rating agencies (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ban, nep-eec, nep-reg and nep-rmg
Note: 328790
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Journal Article: Bank ratings: what determines their quality? (2013) Downloads
Working Paper: Bank ratings-What determines their quality? (2012) Downloads
Working Paper: Bank Ratings: What Determines Their Quality? (2012) Downloads
Working Paper: Bank ratings: What determines their quality? (2012) Downloads
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