The Optimal Regulation of Credit Rating Agencies
نویسندگان
چکیده
Credit rating agencies (CRAs) very often have been criticized for announcing inaccurate credit ratings and are suspected of being exposed to conicts of interest. Despite these objections CRAs remained largely unregulated. Based on Pagano & Immordino (2007), we study the optimal regulation of CRAs in a model where rating quality is unobservable and enforcing regulation is costly. The model shows that minimum rating standards increase the social value of credit ratings. The model also analyzes implications for regulation in the presence of conicts of interest between the CRA and the rated clients by direct bribes and by the joint provision of rating and consulting services. Keywords: credit rating agencies, regulation, conicts of interest JEL Classi cation: G20, G24, G28 Ludwig-Maximilians-Universität München, Department of Economics, e-mail: [email protected]. The author would like to thank Gerhard Illing and Monika Schnitzer for valuable comments.
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