This website uses cookies to ensure you have the best experience. Learn more

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.

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:

2) Lewis Tappan (pag 3):
3) S&P:...

Other Papers Like Rating Agencies And Financial Crisis

Why Did The Afc Take Many By Surprise

1103 words - 5 pages credit rating agencies such as Standard & Poors and Moody’s continued to give high credit ratings to the region. The truth may be that underneath what seemed to be strong, striving, growing economies lay fragile infrastructure. What simply happened as scholars such as Radelet & Sachs (1998) stated was that South East Asia had always been vulnerable to financial panic. As soon as a group of investors began to pull out, mass action began and like a

Nothing To Do Essay

925 words - 4 pages 1.5% of the three countries with the lowest inflation rate. 4. Financial deficit-The budget deficit should not exceed 3% of GDP or moving to this level or has been declined dramatically and close to this level. 5. Liability-- The total national debt must not exceed 60%t of GDP or are effectively decreasing and approaching this goal at a satisfactory speed. (2)The reason of the European debt crisis. Fuse event On October 20th 2009, the

Inside Job

2054 words - 9 pages the country (The banks borrowed $120 million – 3 times the size of Iceland’s economy) c. American accounting firm KPMG audited Iceland’s banks and found nothing wrong. American credit rating agencies gave Iceland’s banks the highest possible credit rating. d. When Icelandic banks collapsed at the end of 2008 unemployment tripled in 6 months and many people lost their savings. e. 1/3 of Iceland’s financial regulators went to


2314 words - 10 pages information regarding securities law violations to come forward. * The SEC also has proposed a series of rules designed to improve the practices of credit rating agencies, including rules to limit the conflicts that may arise when NRSROs rely on client payments to drive profits and rules to monitor rating agency employees who move to new positions with rated entities. When the Commission proposes or adopts a set of rules, often those rules are

Enron Scandal

376 words - 2 pages the role of the gatekeepers of the public trust, in particular accounting firms, banks, rating agencies, supervisors and regulators. This contribution addresses the key questions of why public trust is in decline, why agency relations have broken down within companies and within gatekeepers, and how trust in financial markets can best be restored. It will be argued that, in answering these questions, it will be necessary to go beyond


3412 words - 14 pages . Introduction: Scandals (such as Enron, WorldCom), the September 11 attack and financial crisis of 2007 and 2008 brought attention to loopholes of legislation that market participants have been taking advantage of for years. It was never the intention of regulation to cause market abuse, insider dealings or loss of investments or tangible properties. This paper details the shortcoming of legislation but also highlights how an effective

Finance Assignment

4181 words - 17 pages of the yield to maturity of a firm’s new bond issues as a proxy for a firm’s cost of debt. Of course, the firm’s debt ratio is not the only factor that changes as a firm’s bond rating decreases. The models used by bond rating agencies are more complex and include numerous factors, all of which deteriorate as the riskiness of the firm increases. We use the debt ratio alone as a proxy for these various effects. Table 1 is derived from S&P (2006

Risk Compared With Australia Banks And Hsbc

2315 words - 10 pages Introduction The recent global financial crisis caused numerous serious problems around the world. Many countries like the United States, Spain and Greece suffered very heavy strikes during this financial crisis. The Australian banking system is no exception, has been impacted. Some financial institutions grasp this crisis into good opportunities, however other commercial banks are exposed to big challenge and face many risks like credit and

Rsm220-Week 01 Slides

2259 words - 10 pages agencies, and other Involves determining how funds are allocated among competing interests 13 Accounting and Capital Allocation • An effective process of capital allocation is critical to a healthy economy • Unreliable information leads to poor capital allocation • Credit rating agencies use accounting to rate companies’ financial stability • This gives investors and creditors additional independent information 14 Stakeholders in

Financial 515

1912 words - 8 pages played a big role in this crisis! They created CDOs and got rating agencies to help plan and then rate the new CDOs, with rating agencies making big profits regardless of conflicts of interest by generating high value CDO’s to sell them to investors and make big profits. Investors did buy these high rated CDOs with the lack of knowledge about their risks. The crisis happened when mortgages were reset and borrowers started defaulting and that is

Corporate Finance

8553 words - 35 pages processing mortgage transactions rather than ensuring their credit quality. If the credit rating was properly assessed and higher interest rates assigned to structured securities, then the crisis may have been averted. 2- A more direct connection between securitization and the subprime crisis relates to a fundamental fault in the way that underwriters, rating agencies and investors modeled the correlation of risks among loans in securitization

Related Essays

Acts And The Financial Crisis Essay

1538 words - 7 pages ROOTS OF A FINANCIAL CRISIS Most companies are currently faced with specific challenges, questions and concerns that are caused by today's uncertain economic environment. In times of market instability, there is an increased potential for management fraud as unexpected losses and financing difficulties create pressure on those who are concerned about the financial performance and solvency of their business. Decisions made in the past due to

Research On Usa's Financial And Constructive Crisis

7538 words - 31 pages earned Robert C. Merton and Myron Scholes the Nobel Prize in economics. He even said he could eliminate the risk, and the proof is that the U.S. rating agencies described many of its derivatives with their maximum score (AAA). Paradoxically, time led to the inability to assess risk and therefore the entire financial system ended up describing as toxic an important part of these new products. It's Worth mentioning

United States Global Financial Crisis Essay

999 words - 4 pages transcended the mortgage market to affect many other forms of credit. Aspects of this broader credit boom included widespread declines in underwriting standards, breakdowns in lending oversight by investors and rating agencies, increased reliance on complex and opaque credit instruments that proved fragile under stress, and unusually low compensation for risk-taking. The abrupt end of the credit boom has had widespread financial and economic ramifications

Eurobonds Essay

1743 words - 7 pages believing? In the Financial World, investors have come to depend upon Credit Rating Agencies because according to the European Commission, CRA issue opinions on the creditworthiness of a particular issuer of financial instrument. (2006, p.2) That’s mean that they assess the likelihood that an issuer will default on its financial obligations or debts... How do this work? When the issuer is 100% sure not to default on its financial obligations