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Rethinking Credit Rating Agencies Role In Contemporary Fnancial Systems

Author

Listed:
  • Anita Pavkovic

    (Faculty of Economics and Business Zagreb)

  • Davor Vedris

Abstract

Credit rating agencies today are playing a significant role in well developed global securities and banking markets. Their primary goals are providing independent, objective and high quality ratings to all interested financial services beneficiaries. Market participants (like commercial banks, investment funds, insurance companies, pension funds, other institutional investors and companies), have embedded credit ratings in their investment and credit assessment frameworks. As the markets evolved and became more complex, credit rating agencies were expected to cover an evaluation of wider range of financial instruments and connected risks. Most sophisticated ratings users in recent years did not undertake own due diligence work, but rather outsource their credit risk management to rating agencies and relied on ratings which consequently caused enormous damages and losses in financial systems all around the world. The aim of the paper is to introduce basic limitations in intensive use of credit ratings in investment and banking policies and to give global professional and scientific literature an overview on the positive and negative impacts of their future use.

Suggested Citation

  • Anita Pavkovic & Davor Vedris, 2011. "Rethinking Credit Rating Agencies Role In Contemporary Fnancial Systems," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 20(1), pages 225-250, june.
    • Handle: RePEc:avo:emipdu:v:20:y:2011:i:1:p:225-250
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    File URL: https://hrcak.srce.hr/clanak/103935
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    More about this item

    Keywords

    credit rating agency; rating scale; rating methodology; regulation; transparency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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