 Credit Ratings Failures and Policy OptionsCSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Abstract: This paper examines the role of credit rating agencies in the subprime crisis that triggered the 2007-08 financial turmoil. We focus on two aspects of ratings that contributed to the boom and bust of the market for structured debt: rating inflation and coarse information disclosure. The paper discusses how regulation can be designed to mitigate these problems in the future. Our preferred policy is to require rating agencies to be paid by investors rather than by issuers and to grant open and free access to data about the loans or securities underlying structured debt products. A more modest (but less effective) approach would be to retain the “issuer pays” model but require issuers to pay an upfront fee irrespective of the rating, ban “rating shopping”, and prescribe a more complete format for the information that rating agencies must disseminate. Keywords: credit rating agencies; securitization; default; liquidity; crisis; transparency (search for similar items in EconPapers) Published in Economic Policy, 401-431, April 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:239 Access Statistics for this paper More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC. |
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