The Systemic Regulation of Credit Rating Agencies and Rated Markets

June 1, 2009

Preview Citation

Format: Chicago

Amadou N Sy. The Systemic Regulation of Credit Rating Agencies and Rated Markets, (USA: International Monetary Fund, 2009) accessed September 19, 2024

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.

Subject: Credit, Credit ratings, Credit risk, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Money, Securities, Systemic risk

Keywords: Credit, Credit ratings, Credit risk, Financial crises, Global, Macro-prudential, Micro-prudential, Procylicality, Rating action, Rating agencies, Rating agency, Rating analysis, Rating change, Rating crisis, Rating downgrade, Rating inflation, Rating methodology, Ratings committee, Ratings trigger, Regulation, Securities, Structured credit products, Subprime mortgage, Systemic risk, Targeted rating, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/129
Stock No:

WPIEA2009129
ISBN:

9781451872767
ISSN:

1018-5941

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