Title of article
Rating theraters:Arereputationconcernspowerfulenoughto disciplineratingagencies
Author/Authors
Je´ roˆme Mathis، نويسنده ,
Issue Information
روزنامه با شماره پیاپی سال 2008
Pages
18
From page
657
To page
674
Abstract
Credit ratingagencies(CRAs)areaccusedofbearingastrongresponsibilityfor
contributingtothesubprimecrisisbyhavingbeendeliberatelytoolaxintheratings
of somestructuredproducts.Inresponsetothisaccusation,CRAsarguethatsuchan
attitudewouldbetoodangerousforthem,sincetheirreputationisatstake.The
objective ofthisarticleistoexaminethevalidityofthisargumentwithinaformal
model:Arereputationconcernssufficienttodisciplineratingagencies?
Weshowthatthereputationargumentonlyworkswhenasufficiencylargefraction
of theCRAincomecomesfromothersourcesthanratingcomplexproducts.Bycontrast
when ratingcomplexproductsbecomesamajorsourceofincomefortheCRA,weshow
that itisalwaystoolaxwithapositiveprobabilityandinflatesratingswithprobability
one whenitsreputationisgoodenough.
Weprovidesomeempiricalsupportforthisprediction,byshowingthatceteris
paribus,theproportionofsubprimeresidentialmortgage-backedsecurities(RMBS)that
wereratedAAAbythethreemainCRAsindeedincreasedoverthelasteightyears.
Weanalyzethepolicyimplicationsofourfindingsandadvocateforanewbusiness
modelofCRAsthatwecalltheplatform-paysmodel
Keywords
Credit ratingagenciesConflicts ofinterestReputationRepeatedgames
Journal title
Journal of Monetary Economics
Serial Year
2008
Journal title
Journal of Monetary Economics
Record number
846321
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