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Regulation, Market Structure, and Role of the Credit Rating Agencies
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Regulation, Market Structure, and Role of the Credit Rating Agencies

Emily McClintock Ekins and Mark A. Calabria
Cato Institute, 2012
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Editorial Rating

8

Qualities

  • Controversial
  • Innovative
  • Background

Recommendation

Moody’s, Standard & Poor’s and Fitch emerged as unexpected villains of the housing market collapse. This detailed, enlightening report from the Cato Institute provides a valuable primer on the history of the credit rating agencies and the regulatory scheme they rode to prominence. Emily McClintock Ekins and Mark A. Calabria illuminate the accomplishments and misdeeds of these agencies. Considering the free-market leanings of this think tank, their conclusions are no surprise: Don’t blame the rating agencies, Cato says. Instead, blame the regulators who gave them too much power and too little incentive to innovate. One note: If you don’t align with the Cato Institute’s conservative ideology, you might not find this report convincing. getAbstract suggests it to investors and issuers seeking perspective and insight into the world of rating agencies.

Take-Aways

  • For decades, the three major credit rating agencies – Fitch, Standard & Poor’s and Moody’s – have maintained reputations for financial acumen.
  • Credit rating agencies assess the chances that borrowers will repay a debt instrument.
  • Financial risk grows ever more complex, but these agencies still offer simple, three-letter grades.

About the Authors

Emily McClintock Ekins is a Cato research fellow, a PhD candidate at UCLA and director of polling at Reason Foundation. Mark A. Calabria directs financial regulation studies at the Cato Institute.

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