Bond markets and credit rating agencies

The debate about the authority of credit rating agencies (CRAs) in the capital markets has changed in the wake of the regulatory responses to the faulty assessments made during the global financial crisis. Notwithstanding their role as information intermediaries, CRAs pose a systemic threat for investors and corporations given the significant influence of rating statements in the creditworthiness of firms. Restricted competition and the ‘issuer-pays’ business model provide little incentive for CRAs to draw up timely evaluations of debt issuers. This chapter argues that the lack of alternatives to ratings means that they remain embedded in financial regulations, and it is unlikely that regulators will erode their position in the securities industry.