Title of article :
Rating theraters:Arereputationconcernspowerfulenoughto
disciplineratingagencies
Author/Authors :
Je´ roˆme Mathis، نويسنده ,
Issue Information :
روزنامه با شماره پیاپی سال 2008
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
Journal title :
Journal of Monetary Economics
