Rating Agencies And Financial Crisis Essay

2909 words - 12 pages

Table of content:
1) Introduction

2) Rating agency:
* Who are rating agencies?
* Development of the rating agencies
* Function of rating agencies
* The procedure of rating assignment
* Solicited method
* Unsolicited method
* Sovereign rating
* Rating scale and definition
* Advantages of credit rating
* Disadvantages of credit rating

3) Rating agencies and companies:
* Failures of rating agencies
* Reasons for the mistakes of rating agencies

4) Rating agencies and states:
* Background
* History of Italian rating
* Critics against Italian rating

5) How to improve the rating:
* “Issuer pays” or ...view middle of the document...

Secondly we will focus on the link between rating agencies and private companies, and we’ll analyze the main important failures concerning the quality of rating happened between 2008 and 2009 and we’ll expose the reasons of the clamorous errors.
Thirdly we will pay attention on the dynamics concerning CRAs and states; what happened in Europe during the financial crisis, in particular about Italian situation: how Italian rating has been falling down and the main critics raised against rating agency’s work.
Subsequently the last part of the thesis will be focused on the methods to improve the performance of CRAs, the aim of governments, issuers and investors is shared; each category want to improve the quality of the rating and eliminate the conflict of interest. Therefore there are several theories in this regard, but as we will see, none of them is efficient.
After having examined all this topic points, the conclusion will be given.

Conclusion:
In conclusion, the major role that credit agencies have played during the financial crisis have brought a new and considerable interest on the activity of the CRAs.
Unfortunately this kind of interest hadn’t shown before the downturn; actually if it had manifested before, rating agencies would have felt a bigger responsibility concerning the reliability of their rating, and maybe they wouldn’t have published daring attempts.
Therefore, another solution that rating agencies could have undertaken was the interruption of those rating, surrounded by lack of certainties, in order to reduce catastrophic consequences and also regarding CRAs, they would have kept higher credibility.
Summing up it is clear that is better distrust by the rating expressed by the “three sisters”, because we have seen that agencies apparently loyal and honest, could hide speculation and conflict of interest; plagues for international economy.
If on the one hand the entire economic world have blamed the CRAs as the cause of the crisis, on the other hand is also recognizable that in the current state world needs rating agencies. Therefore we need to find a solution to regulate the system and to improve it, in order to gain a transparent, reliable rating, without conflict of interest.
Although all the world has the same idea, as we have seen the definitive solution is far to be found, because every attempt and every theory has a weak point and the main problems are still remaining.
Therefore, since credit rating agencies are fundamental in our economy, we can’t give up, we need a strong regulatory intervention in order to solve the problems and ensure that such crises do not happen again in the future.
Piè di pagina:
1) partnoy (pag 3): THE SISKEL AND EBERT OF FINANCIAL MARKETS?:TWO THUMBS DOWN FOR THE CREDIT RATING AGENCIES.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=167412

2) Lewis Tappan (pag 3): http://www.pbs.org/wgbh/theymadeamerica/whomade/tappan_hi.html
3) S&P:...

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