The regulatory use of credit ratings in bank capital requirement regulations

Weber, Rolf H.; Darbellay, Aline

doi:10.1057/jbr.2008.22

Cited by 29 publications

(6 citation statements)

References 21 publications

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“…Proponents argued that this would reduce ratings' systemic effects, as both regulated entities and other market participants would pay less attention to them. It would also stimulate market discipline in the rating sector, thereby boosting ratings' informational value (Weber and Darbellay, 2008). But this solution immediately triggered new problems: should ratings be replaced with other risk indicators?…”

Section: Reducing Reliance On Credit Ratingsmentioning

confidence: 99%

Why performativity limits credit rating reform

Stellinga

2019

Finance soc.

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The 2008 crisis made clear that credit rating agencies (CRAs) can contribute to systemic financial risk. Surprisingly, post-crisis reforms have hardly addressed the underlying problems, including rating agencies’ methodologies, their ratings’ homogeneity, and widespread market reliance on these signals. Current scholarship on CRA regulation blames policymakers’ unwillingness to fix systemic problems. This article draws on insights from the social studies of finance literature to provide a different explanation: the key obstacle is policymakers’ inability to fix these problems. The regulatory problem stems from performativity: risk assessments (including ratings) shape the risks they purport to merely describe. Adding to this literature, the article spells out how performativity limits credit rating reforms by making sweeping changes potentially harmful. Standardizing methodologies or setting up a public CRA could reinforce ratings’ homogeneity. Replacing ratings in regulation with market-based indicators might create worse systemic problems. The article then empirically details how EU policymakers, confronted with these dilemmas, ultimately steered clear of bold reforms.

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Section: Reducing Reliance On Credit Ratingsmentioning

confidence: 99%

Why performativity limits credit rating reform

Stellinga

2019

Finance soc.

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“…43 The withdrawal of rating-based regulations is necessary (Partnoy 1999;Weber & Darbellay 2008;Casey & Partnoy 2010). 44 It would remove many of the incentives that led banks and rating agencies to create a huge market for mortgage-related securities (Casey & Partnoy 2010).…”

Section: Enhancing Accountability Through Competition and Reduced Relmentioning

confidence: 99%

Credit Rating Agencies and Regulatory Reform

Darbellay¹,

Partnoy²

2012

Research Handbook on the Economics of Corporate Law

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“…Moreover, the regulatory use of ratings generates a demand for ratings that is associated with the need to comply with such regulation and not with ratings’ quality, thereby eliminating the informational value of ratings. In other words, instead of providing valuable credit information, CRAs are merely selling “regulatory/supervisory licenses” to market participants; and the latter, instead of remunerating the informational content of ratings, pay for the regulatory/supervisory privileges encapsulated into ratings (Partnoy, 1999, 2006, 2009; Weber and Darbellay, 2008).…”

Section: Rating the Principles Of The New Eu Regulatory Architecmentioning

confidence: 99%

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

Staikouras¹

2012

Financial Market

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The undergoing financial turbulence has raised significant concerns over the role that credit rating agencies (CRAs) played in the inception, magnification and expansion of the crisis. In response, the EU legislature has adopted Regulation 1060/2009, which, for the first time, set out a legally binding pan‐European authorization regime for CRAs, which issue ratings that have been used by EU‐based financial institutions. As the turmoil turned into an unprecedented Eurozone debt crisis, EU politicians have been calling for tighter regulation of the credit rating industry. Drawing on the relevant empirical and theoretical research and building upon a comparative study of the corresponding US framework, the paper discusses critically the principles underlying EU Regulation 1060/2009 and the most recent suggestions for its reform. The paper argues that although, overall, the EU Regulation seems to be a well‐balanced instrument in the sense that it introduces the essential checks upon CRAs’ behavior while avoiding excessive regulatory intervention, more fine‐tuning is needed in certain fields, including, rating shopping, financial ties with rated entities, abuse of inside information, transparency and CRAs’ accountability.

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The regulatory use of credit ratings in bank capital requirement regulations

Abstract: The paper addresses recent developments in international bank

Cited by 29 publications

References 21 publications

Why performativity limits credit rating reform

Why performativity limits credit rating reform

Credit Rating Agencies and Regulatory Reform

A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats

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