Summary of An Assessment of the Credit Rating Agencies

Background, Analysis, and Policy

Mercatus Center,

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An Assessment of the Credit Rating Agencies summary
This contrarian view on the regulation of bond credit rating agencies says the government should step back.

Rating

7 Overall

6 Applicability

7 Innovation

6 Style

Recommendation

Stern School of Business professor Lawrence J. White outlines the history of credit rating agencies (CRAs) and traces related federal legislation from the establishment of the Securities and Exchange Commission in 1930 onward. White contends that intertwining bond ratings with “regulatory reliance” has been disruptive and that CRAs meet no current market need. His paper, issued by the conservative Mercatus Center at George Mason University, says improved models could foster competition. White’s contrarian views on the drawbacks of the present regulatory environment carry weight, but likely would not win approval from reigning experts. getAbstract believes that bondholders and traders who are interested in an out-of-the-box analysis from the right-hand side of the economic-thought spectrum will find this an intriguing, contrary read – as will others who wonder what happened to real estate values in the first decade of the 21st century.

In this summary, you will learn

  • What credit rating agencies (CRAs) are and what they do
  • Why CRAs are central to bond markets
  • What public policy changes could improve the safety of bond portfolios held by regulated financial institutions
 

Summary

Credit Rating Agencies
Bond markets rely on major credit rating agencies (CRAs) to rate the likelihood that an issuer will repay a bond using letter-scale classifications from “AAA” (Terrific) through “D.” The “Big Three” bond credit raters are: Moody’s Investors...
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About the Author

Lawrence J. White, a writer and researcher in applied microeconomics, financial regulation and international banking, is a professor at the Stern School of Business.


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