The Systemic Regulation of Credit Rating Agencies and Rated Markets

Author/Editor:

Amadou N Sy

Publication Date:

June 1, 2009

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 09/129

Subject:

English

Publication Date:

June 1, 2009

ISBN/ISSN:

9781451872767/1018-5941

Stock No:

WPIEA2009129

Format:

Paper

Pages:

36

Please address any questions about this title to publications@imf.org