Dear Readers,
This issue, sponsored by Rosa Abrantes-Metz, takes a global look at the vexing question of an essential — but contentious — oligopoly, the credit rating agencies (“CRAs”). Credit Rating Agencies have become increasingly important in the last few years due to the increasing changes in the financial sector. CRAs were recently in the spotlight when certain securities, which were given high rating by CRAs, were downgraded to junk after the crisis, and when they downgraded Member States in Europe during the sovereign debt crisis. This has led several authorities to look more closely at CRAs and to introduce new regulations.
While almost everybody agrees that CRAs are potentially problematic, very few seem to agree on how to analyze them — much less what changes (if any) should be made. And then there are numerous questions: Do antitrust rules apply? After all, dominance in itself is not illegal. And what about the difference between rating private and sovereign risks? Is CRA rating errors-symptomatized by rating inflation or deflation a consequence of low competition or excessive competition? We look at all these issues, propose a variety of approaches and, at the very least, clarify the muddy waters around CRAs.
As always, thank you to our great panel of authors.
Sincerely,
CPI Team
