The Rating Agencies: Is Regulation the Answer?

Richardson, Matthew; White, Lawrence J.

doi:10.1002/9781118258163.ch3

Cited by 29 publications

(9 citation statements)

References 9 publications

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“…Finally, individualists argue that the credit rating agencies were able to wreck havoc in the markets only because the US government had given some rating agencies a quasi‐official status as Nationally Recognised Statistical Rating Agencies whose ratings of certain classes of investors, most notably pension fund managers, were required to abide by (Richardson and White 2009). Individualists argue that in this regulated market credit agencies could be ‘sloppy, corrupt … or simply inaccurate’ because regulations meant that ‘no competitor could take advantage of their mistakes’ (Friedman 2009:134).…”

Section: Individualists and The Failure Of Governmentmentioning

confidence: 99%

The Banking Crisis: Grid, Group and the State of the Debate

Hindmoor

2010

Aust J Public Adm

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The banking crisis and the recession it induced provide a salient backdrop to domestic and international politics. 2 The International Monetary Fund (IMF 2010) estimates that total banking losses between 2008 and 2010 exceeded US$2.3 trillion. This article uses grid-group theory to review the existing literature on the causes of the banking crisis and, in doing so, distinguishes between hierarchical, individualist, egalitarian and fatalist accounts of what went wrong and of what needs to be done to prevent another crisis from occurring. It is argued that the existing reform agenda is underpinned by a hierarchical analysis of the causes of the crisis and that this risks narrowing the support base for the reform process.

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Section: Individualists and The Failure Of Governmentmentioning

confidence: 99%

The Banking Crisis: Grid, Group and the State of the Debate

Hindmoor

2010

Aust J Public Adm

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“…The Calomiris solution, however, also has problems as it would appear to provide an opposite incentive for the ratings agencies – namely to overestimate the risks. What appears to be the best solution comes from Richardson and White (2009). They propose to continue with the model in which the issuer pays for rating the CDOs, but they would require that the issuer apply to SEC.…”

Section: Perverse Incentives From the Community Reinvestment Act And Market Failures In The Private Sectormentioning

confidence: 99%

“…Richardson and White (2009) suggest that a better outcome would have been achieved if regulated financial institutions were free to pick their own bond advisor (which could be a NRSRO). They would be required to justify their choice to their regulator, but the bond advisory market would become open.…”

Section: Notesmentioning

confidence: 99%

The political, regulatory, and market failures that caused the US financial crisis

Tarr

2010

Journal of Financial Economic Policy

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PurposeThe purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008‐2009 US financial crisis and to suggest appropriate recommendations for reform.Design/methodology/approachThe approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses.FindingsWhile Congress was fixing the savings and loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid‐1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest.Originality/valueThe paper focuses on the political economy reasons for why Congress and US administrations provided these perverse incentives to the GSEs and banks to lower mortgage standards. It also proposes some innovative methods of improving bank regulation that address the regulatory capture problem.

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“…All the above are expected to increase transparency and accountability of the rating agencies (SEC, 2008). To reduce the conflict of interest associated with “issuer pays” model, Richardson and White (2009) also propose an alternative method: the SEC may create a centralized clearing platform for rating agencies where enhanced competition will determine a particular rating agency to rate a particular debt. They also propose an “advertiser pays” model which is a blend between “issuer pays” and “investor pays” model.…”

Section: Regulatory Reforms: Some Proposalsmentioning

confidence: 99%

Greed, financial innovation or laxity of regulation?

Mazumder

Ahmad

2010

Studies in Economics and Finance

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PurposeThe purpose of this paper is to shed light on the causes of the 2007‐2009 mortgage crisis, liquidity crisis, stock market volatility in the USA and their spillover effects on the global economy.Design/methodology/approachThe paper critically reviews the 2007‐2009 financial crisis from both academic and practitioners' viewpoints.FindingsThe paper explores how the liquidity crisis has evolved with the advent of poorly supervised financial products, especially the credit default swaps and subprime mortgage loans. Further, it analyzes the laxity in regulations that encouraged high financial leverages, shadow banking system and excessive stock market volatility and worsened the recent financial crisis.Originality/valueThe implication of this paper is to understand numerous policy reforms that will help the global capital markets to be more transparent and less vulnerable to systematic risks; the suggested policy reforms may also help to prevent such financial calamities in the future.

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The Rating Agencies: Is Regulation the Answer?

Cited by 29 publications

References 9 publications

The Banking Crisis: Grid, Group and the State of the Debate

The Banking Crisis: Grid, Group and the State of the Debate

The political, regulatory, and market failures that caused the US financial crisis

Greed, financial innovation or laxity of regulation?

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