What If Credit Rating Agencies Were Downgraded? Ratings, Sovereign Debt and Financial Market Volatility

2011 ◽  
Author(s):  
Donato Masciandaro
Keyword(s):  
Financial Market ◽  
Sovereign Debt ◽  
Credit Rating ◽  
Market Volatility ◽  
Credit Rating Agencies ◽  
Rating Agencies

Part II The Financial Crisis of 2007–2011, 6 Market and Regulatory Failure

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Credit Risk ◽  
Financial Market ◽  
Credit Rating ◽  
Third Party ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Market Participants ◽  
Regulatory Failure

This chapter first discusses the origins of the financial crisis, highlighting practice of ‘packaging and selling’ credit risk by financial market participants that led up to the crisis. It argues that although, in retrospect, many aspects of that practice look very bad indeed, the idea that banks might originate a credit exposure and then transfer the credit risk attached to it to a third party was, before the financial crisis, considered to be part and parcel of sound risk management. The discussion then turns to credit-rating agencies. Analysis of the financial crisis and ‘what went wrong’ has shown that rating agencies were too generous with their rating of many of the structured products that contributed to the collapse.

scholarly journals The Role of Credit Rating Agencies in Sovereign Debt Markets

2018 ◽  
pp. 146-166
Author(s):  
Aline Darbellay
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Credit Ratings ◽  
Credit Rating Agencies ◽  
Past Century ◽  
The European Union ◽  
Rating Agencies ◽  
Sovereign Credit Ratings

Since the global financial crisis of 2007-2009, the leading credit rating agencies (CRAs) have faced an increasing level of legal and regulatory scrutiny in the United States (US) and in the European Union (EU). This chapter sheds light on the promise and perils of sovereign credit ratings in the light of the European sovereign debt crisis. The leading CRAs have been blamed for providing investors with inaccurate credit ratings, facing inappropriate incentives and lack of oversight. This chapter addresses the evolving function performed by CRAs over the past century. Traditionally, CRAs are private market actors assessing the creditworthiness of borrowers and debt instruments. Since the first sovereign bond ratings assigned in 1918, the rating business has grown in size and importance. Sovereign ratings supposedly predict financial distress of governments. Their role has shifted over the last four decades. Although they have repeatedly been blamed for being poor predictors of sovereign debt crises, CRAs continue to play a key role in modern capital markets.

Effects of fiscal credibility on sovereign risk: evidence using comprehensive credit rating measures

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Julyara Costa
Keyword(s):  
Risk Perception ◽  
Financial Market ◽  
Public Debt ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Sovereign Risk ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Long Run

PurposeSince sovereign ratings provided by credit rating agencies (CRAs) are a key determinant of the interest rates a country faces in the international financial market and once sovereign ratings may have a constraining impact on the ratings assigned to domestic banks or companies, some studies have focused on identifying the determinants of sovereign credit risk assessments provided by CRAs. In particular, this study estimates the effect of fiscal credibility on sovereign risk using four different comprehensive credit rating (CCR) measures obtained from CRAs' announcements and two different fiscal credibility indicators.Design/methodology/approachWe build comprehensive credit rating (CCR) measures to capture sovereign risk. These measures are calculated using sovereign ratings, the rating outlooks and credit watches issued by the three main credit rating agencies (S&P, Moody's and Fitch) for long-term foreign-currency Brazilian bonds. Based on monthly data from 2003 to 2018, we use different econometric estimation techniques in order to provide robust results.FindingsThe results indicate that fiscal credibility exerts both short- and long-run effects on sovereign risk perception, and macroeconomic fundamentals are important long-run determinants.Practical implicationsSince fiscal credibility reflects the government's ability to maintain budgetary balance and sustainable public debt, the government should keep its commitment to responsible fiscal policies so as not to deteriorate expectations formed by financial market experts about the fiscal scenario and, thus, to achieve better credit assessments issued by CRAs with respect to sovereign debt bonds. Sovereign credit rating assessment is a voluntary practice. It is up to the country whether they want to apply for a rating assessment or not. Thus, without a sovereign rating, one must find an alternative to measure the sovereign risk of a country. In this sense, an important practical implication that this study provides is that fiscal credibility can be used as a leading indicator of sovereign risk perceptions obtained from CRAs or even as a proxy for sovereign risk.Originality/valueThis paper is the first to verify how important the expectations of financial market experts in relation to the fiscal effort required to keep public debt at a sustainable level (i.e. fiscal credibility) are to sovereign risk perception of credit rating agencies. In this sense, the study is the first to address this relation, and thus it contributes to the literature that seeks to understand the determinants of sovereign ratings in emerging countries.

scholarly journals BANK CREDIT RATINGS AS A RELIABILITY INDEX: (OBJECTIVITY OR A FINANCIAL MARKET DEMAND)

Banking law ◽  
2020 ◽  
Vol 6 ◽  
pp. 7-19
Author(s):  
Gulnara F. Ruchkina ◽  
Keyword(s):  
Financial Market ◽  
Reliability Index ◽  
Credit Rating ◽  
Credit Ratings ◽  
Bank Credit ◽  
Credit Rating Agencies ◽  
Financial Indicators ◽  
Market Demand ◽  
Rating Agencies ◽  
The Law

Separate provisions of the law regulating the activities of credit rating agencies are analyzed. Attention is drowned to the implementation of the provisions of this law, which is implemented by by-laws of the Bank of Russia. Examples of ratings assigned to banks by financial supermarkets are given, as well as up-to-date information in the form of tables about credit ratings assigned to banks. It are concluded that the ratings assigned to banks are more informative in comparison with the financial indicators of banks posted on official websites, as part of the assessment of their financial reliability.

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