Viability of a Government Run Credit Rating Agency

نویسنده

  • Dong Woo Noh
چکیده

This paper considers a hypothetical government-run credit rating agency with a “fixed compensation” scheme. Taking as granted the fact that investors ascribe higher value for highly rated assets, the model attempts to see whether government intervention can lead to a more socially desirable solution. The model features a free rating agent who can either choose to work for the government agency or the private sector. We find that if the regulatory advantage of highly rated assets is high enough so that the rating agent has an incentive to cater to the investors and overrate the assets, the government may improve social welfare by offering a very high fixed compensation. However, it shows that intervention is undesirable when the regulatory advantage is not large enough. The result implies that different economic environments, such as the regulatory regime, macroeconomic conditions, etc., warrant different solutions.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

Government-run Credit Rating Agency and Social Welfare

This paper considers the social welfare implications of having a public rating agency in-stead of private sector credit rating agencies. The public rating agency is assumed to pay a fix compensation rather than a performance sensitive compensation and is assumed to dismiss its employee in case of "misconduct." The model predicts that the public rating agency may be socially beneficial if invest...

متن کامل

Comparison of the Methods for Converting Traditional Credit Rating into the Initial Credit Score in Electronic Commerce

When a company undertakes e-commerce transactions for the first time, most major web sites set the initial credit score of the company as zero, which making buyers and sellers can’t judge the partners’ credibility. In recent years, although commercial banks and some specialized credit rating agencies have established more comprehensive and scientific indicators for evaluating the credit of an e...

متن کامل

The Macroeconomic Effects of Government Asset Purchases: Evidence from Postwar US Housing Credit Policy∗

We document the portfolio activity of federal housing agencies and provide evidence on its impact on mortgage markets and the economy. Through a narrative analysis, we identify historical policy changes leading to expansions or contractions in agency mortgage holdings. Based on those regulatory events that we classify as unrelated to short-run cyclical or credit market shocks, we find that an i...

متن کامل

When AAA Means B : The State of Credit Rating in India

As in many other countries, India's five year old credit rating industry has grown rapidly amidst persistent doubts about the quality of the rating service. This paper evaluates the ratings given by India's leading credit rating agency, CRISIL. We find that CRISIL's ratings are not only too liberal by international standards but also internally inconsistent. We argue that to improve the quality...

متن کامل

Revenge of the Steamroller: ABCP as a Window on Risk Choices

We empirically examine financial institutions’ motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in causing and propagating the liquidity crisis that began in the summer of 2007. We find evidence consistent with important roles for both ownermanager agency pr...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2015