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Credit Rating Agencies: oligopoly in a systemic market

Published: April 2013 · Publisher: MarketLine
S&P Ratings, Moody’s, and Fitch are the largest credit rating companies in the world. Their aggregate market share makes the industry an oligopoly. This industry is critical to the wider economy, but the agencies have suffered little from ...
Report Type Case Studies
Language English
Format Electronic (PDF)
Pages23
Frequency Updated Annually
Availability Will be emailed within 1 business day
Reference No. 0109-6146
Price € 369,00
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Introduction

S&P Ratings, Moody’s, and Fitch are the largest credit rating companies in the world. Their aggregate market share makes the industry an oligopoly. This industry is critical to the wider economy, but the agencies have suffered little from their underestimation of certain risks in the run up to the most recent recession.

Features and benefits

* The publisher's Case Studies describe topics such as innovative products, business models, and significant company acquisitions.
* Fact-based and presented in an accessible style, they explain the rationale of commercial decisions and illustrate wider market and economic trends.

Highlights

A functioning credit ratings industry has systemic importance for the global economy. Credit ratings agencies are not very sensitive to the consequences of inaccurate evaluation.
Reform of the credit ratings industry should emphasize accountability, aligned incentives, and competition.

Your key questions answered

* How important are credit rating agencies to the wider economy?
* How competitive is the credit rating agency market?
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O VERVIEW
Catalyst
Summary
A FUNCTIONING CREDIT RATINGS INDUSTRY HAS SYSTEMIC IMPORTANCE FOR THE GLOBAL ECONOMY
Inaccurate valuation of financial assets and securities
The nature of the service
The nature of the industry
Information not readily available
Incentives for overvaluation; disincentives for accuracy
Widespread disapprobation at the industry’s role in the 2007-8 financial crisis
Lack of information about assets and asset classes
CREDIT RATING AGENCIES ARE NOT AS SENSITIVE TO THE CONSEQUENCES OF INACCURATE EVALUATION AS GENERAL INTERESTS
The “Big Three” and the consequences for inaccurate evaluation
Moody’s
Fitch
S&P
Oligopolistic returns following a lack of market corrections
Oligopolistic returns
Market corrections
Reforming incentives for industry players
Modeling the market for a reformed industry
Perfect and monopolistic competition
The perceived benefits of maintaining the status quo
CONCLUSIONS
Reform of the credit rating industry should emphasize accountability, aligned incentives, and competition
APPENDIX
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Copyright © FriedlNet. You may share using our tools Please don't cut content from FriedlNet and redistribute by email or post to the web.