Credit rating agencies and moral hazard | Zendy

Miloš Božović | Zendy; Branko Urošević | Zendy; Boško Živković | Zendy

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Credit rating agencies and moral hazard

Author(s) -

Miloš Božović,

Branko Urošević,

Boško Živković

Publication year - 2011

Publication title -

panoeconomicus

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.289

H-Index - 14

eISSN - 2217-2386

pISSN - 1452-595X

DOI - 10.2298/pan1102219b

Subject(s) - credit rating , inefficiency , moral hazard , business , incentive , bond credit rating , function (biology) , credit risk , credit enhancement , actuarial science , financial system , finance , economics , credit reference , microeconomics , evolutionary biology , biology

The failure of credit rating agencies to properly assess risks of complex financial securities was instrumental in setting off the global financial crisis. This paper studies the incentives of companies and rating agencies and argues that the way the current rating market is organized may provide agencies with intrinsic disincentives to accurately report credit risk of securities they rate. Informational inefficiency is only enhanced when rating agencies function as an oligopoly or when they rate structured products. We discuss possible market and regulatory solutions to these problems

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