Title |
How to Reform the Credit-Rating Process to Support a Sustainable Revival of Private-Label Securitization |
ID_Doc |
77533 |
Authors |
Herring, R; Kane, EJ |
Title |
How to Reform the Credit-Rating Process to Support a Sustainable Revival of Private-Label Securitization |
Year |
2012 |
Published |
Quarterly Journal Of Finance, 2, 1 |
DOI |
10.1142/S2010139212500024 |
Abstract |
US product-liability laws unwisely treat credit-rating organizations (CROs) as if they produce opinions rather than empirically-based economic research. In principle, trained professionals gather time-varying information ("financial news") and analyze it statistically to reduce it to a single dimension, allegedly for the benefit of investors, which, in turn, enables issuers to finance themselves at lower cost. In practice, the issuer-pays business model currently used for funding the production and distribution of ratings information creates an incentive to favor high-volume issuers by over-rating private-label securitizations. While the Dodd-Frank Act intensifies SEC oversight of CRO activity, the SEC has a history of being captured by regulatory clients. We argue that the fundamental solution is to create accountability in the ratings process so that private label securitizations can play a constructive role in the provision of credit and we go on to offer some conjectures about how this could be done. |
Author Keywords |
Credit ratings; credit rating regulation; credit risk; securitization |
Index Keywords |
Index Keywords |
Document Type |
Other |
Open Access |
Open Access |
Source |
Emerging Sources Citation Index (ESCI) |
EID |
WOS:000216882100002 |
WoS Category |
Business, Finance |
Research Area |
Business & Economics |
PDF |
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