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To Judge Leviathan: Sovereign Credit Ratings, National Law, and the World Economy

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  • BRUNER, CHRISTOPHER M.
  • ABDELAL, RAWI

Abstract

Recent decades have witnessed the remarkable rise of a kind of market authority almost as centralized as the state itself – two credit rating agencies, Moody's and Standard & Poor's. These agencies derive their influence from two sources. The first is the information content of their ratings. The second is both more profound and vastly more problematic: Ratings are incorporated into financial regulations in the United States and around the world. In this article we clarify the role of credit rating agencies in global capital markets, describe the host of problems that arise when their ratings are given the force of law, and outline the alternatives to the public policy dilemmas created when ratings receive a public imprimatur. We conclude that agencies designated for regulatory purposes should be required to provide more nuanced ratings exposing their perceptual and ideological underpinnings (especially for sovereigns), and facilitating consideration of alternatives to ratings-dependent regulation.

Suggested Citation

  • Bruner, Christopher M. & Abdelal, Rawi, 2005. "To Judge Leviathan: Sovereign Credit Ratings, National Law, and the World Economy," Journal of Public Policy, Cambridge University Press, vol. 25(2), pages 191-217, August.
    • Handle: RePEc:cup:jnlpup:v:25:y:2005:i:02:p:191-217_00
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    Cited by:

    1. Rosati, Nicoletta & Bellia, Mario & Matos, Pedro Verga & Oliveira, Vasco, 2020. "Ratings matter: Announcements in times of crisis and the dynamics of stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    2. Miles Kellerman, 2021. "Market structure and disempowering regulatory intermediaries: Insights from U.S. trade surveillance," Regulation & Governance, John Wiley & Sons, vol. 15(4), pages 1350-1369, October.
    3. Cuadros-Solas, Pedro Jesús & Salvador Muñoz, Carlos, 2022. "Disentangling the sources of sovereign rating adjustments: An examination of changes in rating policies following the GFC," Research in International Business and Finance, Elsevier, vol. 59(C).
    4. Slapnik, Ursula & Lončarski, Igor, 2023. "Understanding sovereign credit ratings: Text-based evidence from the credit rating reports," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    5. Vanel, Grégory, 2008. "La normalisation financière internationale face à l’émergence de nouvelles autorités épistémiques américaines," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 3.
    6. Janna Mai Nguyen & Dodo zu Knyphausen‐Aufseß, 2014. "The Impact of Sovereign Credit Ratings on Corporations: A Literature Review and Research Recommendations," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 23(3), pages 125-178, August.
    7. De Moor, Lieven & Luitel, Prabesh & Sercu, Piet & Vanpée, Rosanne, 2018. "Subjectivity in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 366-392.
    8. Panagiotis K. Staikouras, 2012. "A Theoretical and Empirical Review of the EU Regulation on Credit Rating Agencies: In Search of Truth, Not Scapegoats," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 21(2), pages 71-155, May.
    9. Andreas Kruck, 2017. "Asymmetry in Empowering and Disempowering Private Intermediaries," The ANNALS of the American Academy of Political and Social Science, , vol. 670(1), pages 133-151, March.
    10. Janna Mai Nguyen & Dodo zu Knyphausen‐Aufseß, 2016. "The Role of Sovereign Ratings in M&A Markets: Empirical Evidence from Latin America and South East Asia," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 25(1), pages 5-48, January.
    11. Basu, Kaushik & De, Supriyo & Ratha, Dilip & Timmer, Hans, 2013. "Sovereign ratings in the post-crisis world : an analysis of actual, shadow and relative risk ratings," Policy Research Working Paper Series 6641, The World Bank.
    12. Choy, Swee Yew & Chit, Myint Moe & Teo, Wing Leong, 2021. "Sovereign credit ratings: Discovering unorthodox factors and variables," Global Finance Journal, Elsevier, vol. 48(C).

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