Rating agencies: How to improve them ?

In 2007-08 rating agencies were designated as some of the main culprits of the US subprime loans meltdown. Competition is an important dimension of the debate on rating, a dominant share of the market belonging to only two players, Standard & Poor’s and Moody’s. There is no question that these agencies are a problem: their fallibility, illustrated by the subprime episode, is at odd with the trust and faith provided to their judgments by quite a few public regulations and business contracts. The 2007-08 crisis has led the G20 to recommend the introduction of similar regimes into most advanced economies. Regulation tends to increase barriers to entry and to discourage innovation, as it is currently proposed by the EU. The author addresses the question of the actions to be taken to tackle the deficiencies of rating agencies.

*This article is an automatic translation of the original article, provided here for your convenience. Read the original article. Rating agencies have long been part of the financial market landscape, but the financial crisis since 2007 has greatly increased their public visibility. Two sequences have been particularly striking. First, in 2007-08, the agencies were named among the main culprits in the subprime debacle in the United States, having assigned AAA ratings to structured products that did not deserve them because they failed to anticipate the possibility of a generalised decline in property prices throughout the United States. Secondly, over the past two years, the agencies have become the visible face of the sovereign securities markets in Europe, and are regularly denounced

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