scholarly journals Competition and Strategic Incentives in the Market for Credit Ratings: Empirics of the Financial Crisis of 2007

2019 ◽  
Vol 109 (10) ◽  
pp. 3514-3555 ◽  
Author(s):  
Chenghuan Sean Chu ◽  
Marc Rysman
Keyword(s):  
Financial Crisis ◽  
Structural Model ◽  
Credit Ratings ◽  
Mortgage Backed Securities ◽  
Strategic Incentives

We study the market for ratings agencies in the commercial mortgage backed securities sector leading up to and including the financial crisis of 2007–2008. Using a structural model adapted from the auctions literature, we characterize the incentives of ratings agencies to distort ratings in favor of issuers. We find an important equilibrium distortion, which decreased after the crisis. We study several counterfactual experiments motivated by recent policymaking in this industry. (JEL D44, G01, G24)

Credit Ratings and Security Prices in the Subprime MBS Market

2011 ◽  
Vol 101 (3) ◽  
pp. 115-119 ◽  
Author(s):  
Adam Ashcraft ◽  
Paul Goldsmith-Pinkham ◽  
Peter Hull ◽  
James Vickery
Keyword(s):  
Financial Crisis ◽  
Predictive Power ◽  
Credit Ratings ◽  
Preliminary Evidence ◽  
Informational Content ◽  
Security Prices ◽  
Subprime Mortgage ◽  
Ongoing Research ◽  
Mortgage Backed Securities ◽  
Recent Financial Crisis

We present and discuss preliminary evidence suggesting that credit ratings significantly influenced prices for subprime mortgage-backed securities issued in the period leading up to the recent financial crisis. Ratings are closely correlated with prices even controlling for a rich set of security- and loan-level controls. This incremental variation in ratings has much less predictive power for security defaults, however, based on findings to date from our ongoing research, suggesting prices were excessively sensitive to ratings relative to their informational content.

scholarly journals Do investors value frequent issuers in securitization?

2021 ◽  
Author(s):  
Solomon Y. Deku ◽  
Alper Kara ◽  
Nodirbek Karimov
Keyword(s):  
Financial Crisis ◽  
Foreign Banks ◽  
Yield Spread ◽  
Information Asymmetries ◽  
Crisis Period ◽  
Credit Quality ◽  
Initial Yield ◽  
Mortgage Backed Securities ◽  
Lending Standards ◽  
Credit Cycle

AbstractWe assess the value of frequent issuers to investors in securitization markets by examining the initial yield spread of 6132 European mortgage-backed securities (MBS), covering a 20-year period between 1999 and 2018. We find that frequent issuers have certification value, and it increases as the credit cycle approaches its peak, as lending standards loosen, and information asymmetries in securitization markets increase. Investors value frequent issuers more favourably on riskier, difficult to evaluate MBS. We find that after the great financial crisis (GFC), investors began to attribute more value to frequent issuers, regardless of MBS credit quality. We also find that in the pre-crisis period, investors required higher yields to compensate for perceived rating shopping, which is not observed after the GFC. Finally, we show that investors expect higher yields on deals closed by subsidiaries of foreign banks.

scholarly journals Trust Buffers Against Reduced Life Satisfaction When Faced With Financial Crisis

2021 ◽  
Vol 12 ◽  
Author(s):  
Jocelyne Clench-Aas ◽  
Ingrid Bergande ◽  
Ragnhild Bang Nes ◽  
Arne Holte
Keyword(s):  
Life Satisfaction ◽  
Financial Crisis ◽  
Structural Model ◽  
Negative Impact ◽  
National Level ◽  
National Income ◽  
Political Trust ◽  
European Social Survey ◽  
Global Crisis ◽  
Country Level

Background: In light of the coronavirus disease 2019 (COVID-19) pandemic and its large economic consequences, we used a three-layer nested structural model (individual, community, and country), each with a corresponding measure of income, trust, and satisfaction, to assess change in their interrelationships following a global crisis; which, in this study, is the 2008/2009 financial crisis.Methods: With multilevel techniques, we analyzed data from two waves (2006 and 2012) of the European Social Survey (ESS) in 19 countries (weighted N = 73,636) grouped according to their levels of trust.Results: In high trust countries, personal life satisfaction (LS) was not related to personal, community, or national income before or after the crisis. In contrast, in low trust countries, LS was strongly related to all three forms of income, especially after the crisis. In all country groups, personal, social, and political trust moderated their respective effects of income on LS (“the buffer hypothesis”). Political trust moderated the effects of income more strongly in low trust countries. The moderating effect of political trust increased sharply after the crisis. After the crisis, national-level factors (e.g., political trust, national income) increased their importance for LS more than the factors at the local and individual levels. However, the relative importance of all the three forms of income to LS increased after the crisis, to the detriment of trust.Conclusion: Economic crises seem to influence personal LS less in high trust countries compared with low trust countries. Hence, high trust at a national level appears to buffer the negative impact of a financial crisis on personal satisfaction. Overall, the factors at the national level increased their impact during the financial crisis. When facing a global crisis, the actions taken by institutions at the country level may, thus, become even more important than those taken before the crisis.

scholarly journals Credit Rating Strategies: A Study of GCC Banks

2020 ◽  
Author(s):  
Y. Sree Rama Murthy ◽  
Saeed Al-Muharrami
Keyword(s):  
Financial Crisis ◽  
Commercial Banks ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Focal Point ◽  
Credit Ratings ◽  
Islamic Banks ◽  
Before And After ◽  
Capital Ratios ◽  
Financial Strategies

<p><b>Purpose</b></p> <p>It is difficult to predict when the next financial crisis will happen. Identifying financial strategies, which help a bank to survive a crisis, is the main purpose of the paper. This paper examines the financial strategies of those banks, which managed to retain good credit ratings both before and after the global financial crisis, so as to throw light on the characteristics of banks which managed to remain steady and stable. </p> Design <p>This paper analyses Fitch credit ratings of 51 banks Islamic and commercial banks operating in GCC, divided into pre global financial crisis (2002 to 2007) and post global financial crisis (2008 to 2013) periods. Trend and behavior of average ratios of top rated banks in both the periods is first attempted before moving to “Ordered Choice Logit” regression method to further analyze the data. </p> <p><b>Findings</b></p> <p>Size and cost management are very important factors in ratings, both before and after the financial crisis. As long as asset quality is under control, liquidity is the focal point in achieving good ratings. Top rated Islamic banks seem to be following a strategy of allowing capital ratios to trend down during a crisis as long as capital is well above the regulatory requirements. </p> <p><b>Originality and Value</b></p> <p>The paper is the first of its kind which examines credit rating strategies of Islamic banks as well as commercial banks. <a>The findings of the paper are extremely important for banks as they throw light on appropriate strategies to be adopted by banks during crises.</a></p>

scholarly journals Credit Rating Strategies: A Study of GCC Banks

2020 ◽  
Author(s):  
Y. Sree Rama Murthy ◽  
Saeed Al-Muharrami
Keyword(s):  
Financial Crisis ◽  
Commercial Banks ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Focal Point ◽  
Credit Ratings ◽  
Islamic Banks ◽  
Before And After ◽  
Capital Ratios ◽  
Financial Strategies

<p><b>Purpose</b></p> <p>It is difficult to predict when the next financial crisis will happen. Identifying financial strategies, which help a bank to survive a crisis, is the main purpose of the paper. This paper examines the financial strategies of those banks, which managed to retain good credit ratings both before and after the global financial crisis, so as to throw light on the characteristics of banks which managed to remain steady and stable. </p> Design <p>This paper analyses Fitch credit ratings of 51 banks Islamic and commercial banks operating in GCC, divided into pre global financial crisis (2002 to 2007) and post global financial crisis (2008 to 2013) periods. Trend and behavior of average ratios of top rated banks in both the periods is first attempted before moving to “Ordered Choice Logit” regression method to further analyze the data. </p> <p><b>Findings</b></p> <p>Size and cost management are very important factors in ratings, both before and after the financial crisis. As long as asset quality is under control, liquidity is the focal point in achieving good ratings. Top rated Islamic banks seem to be following a strategy of allowing capital ratios to trend down during a crisis as long as capital is well above the regulatory requirements. </p> <p><b>Originality and Value</b></p> <p>The paper is the first of its kind which examines credit rating strategies of Islamic banks as well as commercial banks. <a>The findings of the paper are extremely important for banks as they throw light on appropriate strategies to be adopted by banks during crises.</a></p>

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