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The Systemic Regulation of Credit Rating Agencies and Rated Markets

Author/Editor: Sy, Amadou N. R.
Authorized for Distribution: June 1, 2009
Electronic Access: Free Full Text (PDF file size is 745KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Credit ratings have contributed to the current financial crisis. Proposals to regulate credit rating agencies focus on micro-prudential issues and aim at reducing conflicts of interest and increasing transparency and competition. In contrast, this paper argues that macro-prudential regulation is necessary to address the systemic risk inherent to ratings. The paper illustrates how financial markets have increasingly relied on ratings. It shows how downgrades have led to systemic market losses and increased illiquidity. The paper suggests the use of "ratings maps" and stress-tests to assess the systemic risk of ratings, and increased capital or liquidity buffers to manage such risk.
 
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Series: Working Paper No. 09/129
Subject(s): Bank supervision | Banking sector | Bonds | Capital markets | Credit | Credit risk | Financial crisis | Financial risk | Financial systems | Governance | Nonbank financial sector | Risk management | Securities markets | Securities regulations
Author's keyword(s): Rating agencies | financial crises | structured credit products | macro-prudential | micro-prudential | regulation | systemic risk | procylicality
 
English  
    Published:   June 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009129   Pages:   36
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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