the effect of increased competition on the quality of credit ratings
- Evelien Claes
In mijn master thesis wordt een kritische analyse gedaan van de rol die credit rating agentschappen spelen in de economische wereld en de manier waarop ze informatie verschaffen. Het feit dat credit raters enerzijds voor hun diensten betaald worden door de aanvragers van deze diensten zelf, namelijk de issuers, en het beperkt aantal spelers in de ratingmarkt anderzijds, geeft aanleiding tot heel wat belangen conflicten. Als antwoord hierop zijn in Europa strenge reguleringen ontstaan inzake het beleid en toezicht op cra’s en zijn zelfs nieuwe wetsvoorstellen reeds in aanmaak. Hierbij moet echter de vraag gesteld worden of deze recente wetsvoorstellen een effectieve oplossing kunnen bieden voor de problemen die gepaard gaan met credit ratings. Zo zou het namelijk kunnen dat we afstevenen op een situatie van overregulatie waarbij het net de complexiteit van de regulering is die aanleiding geeft tot problemen. Een systeem van zelfregulering, dat via het marktmechanisme mogelijk gemaakt wordt, kan een alternatief bieden. De ‘reputational capital view’ benadering gaat er van uit dat credit raters in voldoende mate zelfregulerend functioneren doordat ze streven naar een goede reputatie. Om zulke reputatie te bereiken, is het belangrijk dat de credit ratings betrouwbaar en waardevol zijn, waardoor de credit rater het vertrouwen van de issuer voor zich kan winnen. In de economische paper zijn we echter tot de conclusie gekomen dat deze benadering niet steeds consistent is en geen verklaring kan bieden voor bepaalde marktgedragingen. Zo zal het belang van een goede reputatie afnemen naarmate er meer spelers op de markt zijn en verhoogde competitie mogelijk gemaakt wordt. Dit kan verklaard worden door het feit dat in een situatie van toegenomen competitie, de verwachte toekomstige inkomsten zullen afnemen doordat de totale winst moet gedeeld worden over een groter aantal spelers. Ter compensatie zullen de rating agentschappen opteren om meer inkomsten op korte termijn te genereren door ratings uit te geven die gunstig zijn voor de issuer.
Deze theorie werd in onze economische thesis getoetst door een reeks testen op te stellen die nagaan wat het effect is van verhoogde competitie op de kwaliteit van credit ratings. De resultaten hiervan zijn in lijn met de bestaande literatuur. Ze tonen aan dat verhoogde competitie, wat in het economisch model overeenstemt met de toetreding van Fitch, een significant negatieve impact heeft op de kwaliteit van credit ratings. Het niveau van de ratings zal stijgen, uitsluitend als gevolg van een verhoogd aantal concurrenten in de markt, en de voorspellingskracht ten aanzien van een toekomstige ‘default’ zal afnemen. Deze resultaten zijn echter gedeeltelijk in strijd met de recente wetsvoorstellen inzake credit rating agencies. Zo bevat het Europese voorstel van 15 oktober 2011 voor een nieuwe cra regulering een aanal maatregelen om de competitie in de rating markt te verhogen.
Meer spelers in de rating markt geeft aanleiding tot een daling van het belang dat credit raters hechten aan een goede reputatie, waardoor de kwaliteit van de credit ratings zal afnemen. Belangrijk hierbij is echter te weten dat verhoogde competitie ook voordelen met zich meebrengt. Zo zal er meer informatie beschikbaar zijn op de markt, waardoor investeerders een bredere keuze hebben en het mogelijk gemaakt wordt om ratings van verschillende agentschappen te vergelijken.
Bibliografie
Article 3(1) (a) Regulation (EC) 1060/2009 of the European Parliament and of the Council of credit rating agencies
Regulation 2003/125/EG of the European parliament and of the board, as regards the fair presentation of investment recommendations and the disclosure of conflicts of interest
Regulation (EC) N° 1060/2009 of the European parliament and of the council of 16 September 2009 concerning credit rating agencies
Regulation (EU) N° 513/2011 an amendment to the CRA Regulation of 1 June 2011
Proposal for a regulation of the European parliament and of the council amending regulation (EC) N° 1060/2009 on credit rating agencies
The Technical Committee of the International Organization of Securities Commissions, Code of Conduct Fundamentals for Credit Rating Agencies, December 2004, 11p.
Text books and collections
Alcubilla, R. & Del Pozo, J. (2012). Credit Rating Agencies on the Watch List, Analsis of European Regulation. Oxford: University Press.
Brigo, D. & Mercurio, F. (2006). Interest rate models- theorie and practice: with smile inflation and credit. Berlijn: Springer.
Caprio, G. (2012). Handbook of Key Global Financial Markets, Institutions, and Infrastructure. New York: Academic Press.
Richard, S. (2002). Rating, rating agencies and the global financial system. New York: Publisher US.
Contributions in journals
Adelson, M. (2006). Rating shopping, now the consequences. ASR Daily 2006, 12-30.
Allen, F., Carletti, E. & Marquez, R. (2009).Credit market competition and Capital regulation. Oxford journals Economics and Social sciences, 983-1018.
Bannier, C. & Hirsch, C. (2010).The economic function of credit rating agencies: what does the watchlist tell us?. Journal of Banking & Finance, 3037-3049.
Becker, B. & Milbourne, T. (2011).How did increased competition affect credit ratings?. Journal of Financial Economics,493-514.
Becker ,B. & Milbourne, T. (2011).Reputation and competition: evidence from the credit rating industry. Journal of Financial Economics, 493-514.
Boot, A. (2008).Credit ratingbureaus en de stabiliteit van de financiële sector. Maandblad voor accountancy en Bedrijfseconomie, 227-234.
Boot, A. (2006).De toegevoegde waarde van credit ratings. the review of financiel studies, 11-18.
Bruyninckx, T. (2008).Rating agencies: inhoud, regelementering en aansprakelijkheid. Jura Falconis, 75-98.
Cantor, R. & Packer, F. (1994).The credit rating industry.Federal Reserve Bank of New York Journal Quarterly review, 1-26.
De Haan, J. & Amtenbrink, F. (2009).Regulating Credit Rating Agencies in the European Union: A Critical First Assessment of Regulation 1060/2009 on Credit Rating Agencies. Common market law review, 15–49.
Deryn, D. (2009).Credit Rating Agencies and the Credit Crisis: How the Issuer Pays Conflict Contributed and What Regulators Might Do about It. Columbia Business Law Review, 607- 633.
Donkers, K. (2010).Credit rating agencies: informative-asymmetrie en civielrechtelijke aansprakelijkheid.Maandblad voor accountancy en bedrijfseconomie, 506-515.
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Hunt, J.P. (2009).Credit Rating Agencies and the 'Worldwide Credit Crisis': The Limits of Reputation, the Insufficiency of Reform, and a Proposal for Improvement. Columbia Business Law Review, 109-209.
Jiang, J. et al. (2012).Does it matter who pays for bond ratings? Historical evidence. Journal of Financial Economics, 607-621.Geraadpleegd via http://dx.doi.org/10.1016/j.jfineco.2012.04.001
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Tang, T. (2008).Information asymmetry and firms’ credit market access: Evidence from Moody’s credit rating format refinement. Journal of financial economics, 325-351.
White, L.J. (2010).Markets: The credit rating agencies. Journal of economic perspectives, 211-226.
White, L.J. (2009).The Credit-rating Agencies and the Subprime Debacle. Critical Review 21 no. 2-3, 389–399.
White, L.J. (2010). The Credit Rating Agencies: How Did We Get Here? Where Should We Go? . Journal of Economic Perspectives, 21-33.
Wolfson, J. & Crawford, J. (2010).Lessons From The Current Financial Crisis: Should Credit Rating Agencies Be Re-Structured?. Journal of Business & Economics Research, 82-115.
Bar-isaac, H. & Shapiro, J. (2010). Ratings quality over the business cycle (working paper NYU and University of Oxford), 30p.
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Mathis, J. (2009).Rating the raters: Are reputation concerns powerful enough to discipline rating agencies? (Working paper Toulouse school of economics), 12p.
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Paragraaf 43 Regulation N° 1060/2009 on credit rating agencies
Paragraaf 11 Regulation N° 1060/2009 on credit rating agencies
Paragraaf 22 Regulation N°1060/ 2009 on credit rating agencies
Artikel 2 Regulation N°1060/ 2009 on credit rating agencies
Paragraaf 26 Regulation N°1060/ 2009 on credit rating agencies
Artikel10 Regulation N°1060/ 2009 on credit rating agencies
Paragraaf 25 Regulation N°1060/ 2009 on credit rating agencies
Paragraaf 27 Regulation N°1060/2009 on credit rating agencies
Paragraaf 29 point 13 section III commission recommendation 2005/162/EC on the role of non-executive or supervisory directors of listed companies
Paragraaf 30 Regulation N° 1060/2009 on credit rating agencies
Artikel 7 N°1060/2009 on credit rating agencies
Paragraaf 35 Regulation N°1060/2009 on credit rating agencies
Paragraaf 58 Regulation N°1060/2009 on credit rating agencies
Paragraaf 6 Regulation N° 513/2011 on credit rating agencies
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Regulation N° 2011/0361 amending regulation N°1060/2009 on credit rating agencies
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Artikel 8(5a) proposal N° 2011/ 0361 on credit rating agencies
Artikel 8(6)(aa) proposal N° 2011/ 0361 on credit rating agencies
Artikel 22a(3) proposal N°2011/0361 on credit rating agencies
Artikel 5a proposal N° 2011/ 0361 on credit rating agencies
Artikel 8b proposal N° 2011/0361 on credit rating agencies
Artikel 6b proposal N° 2011/ 0361 on credit rating agencies
Paragraaf 13 proposal N° 2011/ 0361 on credit rating agencies
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Paragraaf 7 proposal 2011/ 0361 on credit rating agencies
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Market Abuse Directive (MAD 2003/6)
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Rechtsleer
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Bijdragen in tijdschriften
Amtenbrink, F. and De Haan, J., “Regulating Credit Rating Agencies in the European Union: A Critical First Assessment of Regulation 1060/2009 on Credit Rating Agencies”, Common market law review 2009,15–49.
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