Handbook of Key Global Financial Markets, Institutions, and Infrastructure

Chapter 35

Credit Ratings and Credit Rating Agencies

U.G. Schroeter

University of Mannheim, Mannheim, Germany

Outline

Introduction

Credit Ratings

Credit ratings as subjective, predictive opinions

Credit ratings as global information: rating symbols and reports

Credit risk as the sole subject of credit ratings

Credit Rating Agencies

Objects of Credit Ratings

Borrowing Entities

Debt Securities

Structured Finance

Sovereigns and Sovereign Debt

Business Models of Credit Rating Agencies

Investor-Pays Model

Issuer-Pays Model

Conflict of interest

Potential effects of the conflict of interest

Mixed Business Model

Functions of Credit Ratings and Credit Rating Agencies

Market Information Function

Regulatory Function

Market Structure and Competition

Oligopolistic ...