The Systemic Regulation of Credit Rating Agencies and Rated Markets

Sy, Amadou

doi:10.2139/ssrn.1422699

Cited by 34 publications

(36 citation statements)

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“…One example is a paper discussing the necessity of macroprudential regulation in addressing the systemic risks inherent to ratings (Sy 2009). The systemic risk question should be increasingly taken into account by regulators and researchers.…”

Section: Open Questionsmentioning

confidence: 99%

Credit Rating Agencies and Regulatory Reform

Darbellay¹,

Partnoy²

2012

Research Handbook on the Economics of Corporate Law

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Section: Open Questionsmentioning

confidence: 99%

Credit Rating Agencies and Regulatory Reform

Darbellay¹,

Partnoy²

2012

Research Handbook on the Economics of Corporate Law

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“…A useful method to measure the systemic exposure to downgrade risk during boom cycles would be for regulators and institutions to stress test their balance sheet and off-balance sheet positions. And finally, systemic institutions that are vulnerable to abrupt ratings downgrades may have to hold more capital or liquidity buffers (Sy 2009). …”

Section: What Remains To Be Done?mentioning

confidence: 99%

The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective

Utzig¹

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteSiegfried Utzig is director of the Association of German Banks in Berlin. An earlier version of this paper was presented at the Conference on Credit Ratings, Credit Rating Agencies, and their Development in Asia, held 1-2 July 2009 at ADBI in Tokyo.The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. AbstractCredit rating agencies (CRAs) bear some responsibility for the financial crisis that started in 2007 and remains ongoing. This is acknowledged by policymakers, market participants, and by the agencies themselves. It soon became clear that, given the depth of the crisis, CRAs would not be able to satisfy policymakers by eliminating flaws in their rating methods and improving corporate governance. Although the CRAs were more or less unregulated before

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“…With this in mind, public authorities were expected to curb destabilizing practices by becoming much more prescriptive in valuation routines. Ideas included stricter rules for judging financial instruments' riskiness in capital and liquidity regulation, filtering out the pro-cyclical effects of accounting standards, or limiting the impact of flawed CRA methodologies (Brunnermeier et al, 2009;Sy, 2009;Warwick Commission, 2009). …”

Section: Introductionmentioning

confidence: 99%

“…After all, many flaws in valuation routines had been buffeted by pre-crisis regulation (Brunnermeier et al, 2009;Warwick Commission, 2009). Therefore, faulty credit ratings for complex financial products suggested that public authorities should introduce quality checks for rating methodologies (Sy, 2009) or even start doing the rating themselves through some kind of public rating agency (Bofinger, 2009). And banks' pre-crisis risk models, that apparently contributed to pro-cyclicality by allowing them to reduce capital requirements and underestimate liquidity risks during the boom, seemed to call for public authorities' prescription or intensified checking of risk-assessment procedures (Di Noia et al, 2009).…”

mentioning

confidence: 99%

The regulator's conundrum. How market reflexivity limits fundamental financial reform

Stellinga

Mügge

2017

Review of International Political Economy

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Financial firms' valuation approaches are key to financial market functioning. The financial crisis exposed fundamental faults in pre-crisis practices and the regulations that bolstered them. Critics pointed to reflexivity: financial markets have no solid anchor outside of market participants' assessments, which makes them inherently unstable. Reflexivity implies valuation techniques are performative: they shape rather than reflect risks. Critics thus called for root and branch reform: regulators needed to regain control over these valuation practices. In spite of a flurry of changes, progress on the reforms has been limited in precisely those domains where it seemed most necessary. We argue that this lack of progress does not persist in spite of market reflexivity, but because of it. Public prescriptiveness might mandate widespread use of deficient valuation routines, exacerbating their deleterious performative effects and implicating public authorities in future financial crises. In the regulator's conundrum, neither a hands-off approach to valuation approaches, nor an interventionist stance promises to be effective. Empirically, we show how reflexivity has obstructed fundamental reforms in the European Union in three key domains: credit ratings, liquidity regulation, and accounting standards. Market reflexivity itself is, therefore, crucial to understanding the limited regulatory reforms we have witnessed since the crisis.

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The Systemic Regulation of Credit Rating Agencies and Rated Markets

Cited by 34 publications

References 7 publications

Credit Rating Agencies and Regulatory Reform

Credit Rating Agencies and Regulatory Reform

The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective

The regulator's conundrum. How market reflexivity limits fundamental financial reform

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