The Discipline of Credit Rating Agencies
Luca Giordano, Valerio Novembre, Neomisio Susi
Foreword
Introduction to 'Basel III and Beyond'
The Big Financial Crisis
The Policy Response: From the G20 Requests to the FSB Roadmap; Working Towards the Proposals of the Basel Committee
The New Definition of Regulatory Capital
A New Framework for the Trading Book
Counterparty Credit Risk and Other Risk-Coverage Measures
Tools for Mitigating the Procyclicality of Financial Regulation
The Regulatory Leverage Ratio
The New Framework for Liquidity Risk
The Discipline of Credit Rating Agencies
Systemically Important Banks
Regulating Remuneration Schemes in Banking
Crisis Management and Resolution
The Impact of the New Regulatory Framework
A Brazilian Perspective on Basel III
A New Institutional Framework for Financial Regulation and Supervision
Structural Regulation Redux: The Volcker Rule
The Changing Uses of Contingent Capital under the Basel III Framework
This article was first published as a chapter in Basel III and Beyond, by Risk Books.
Credit rating agencies (CRAs) play an important role in global securities and banking markets, as their credit ratings are used by investors, borrowers, issuers and governments as part of making informed investment and financing decisions. Credit institutions, investment firms, insurance undertakings, reinsurance undertakings, undertakings for collective investment in transferable securities (UCITS) and institutions for occupational retirement provision may use those credit ratings as the reference for the calculation of their capital requirements for solvency purposes or for calculating risks in their investment activity. However, their function had been increasingly questioned, especially with regard to the role credit ratings for structured finance had played in prompting the crisis. Many observers have argued that CRAs hold key responsibility for the crisis. In particular, they have been accused of oligopolistic behaviour, and of reacting slowly when downgrading to market trends. Also, their conflicts of interest and sometimes over-optimistic creditworthiness opinions have been increasingly
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