Chapter

Financial Crisis: Global Regulatory Reaction

Garcia Alcubilla and Ruiz del Pozo

in Credit Rating Agencies on the Watch List

Published in print March 2012 | ISBN: 9780199608867
Published online May 2012 | e-ISBN: 9780191739125 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199608867.003.0002
Financial Crisis: Global Regulatory Reaction

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Rating agencies were in the spotlight again as a result of the US subprime crisis that started during the summer of 2007 and that highlighted the systemic relevance of the agencies in financial markets. Deficiencies were detected in three main areas: agencies were sometimes affected by conflicts of interest, were not always vigilant on the quality of the rating methodologies, and there was lack of adequate public disclosure, specially on critical model assumptions and on the characteristics and limitations of ratings. The limited scope of competition among rating agencies contributed to accentuate those weaknesses. Consensus emerged in the international regulatory community on the need to address these failures through the establishment of public oversight and regulation of rating agencies and by diminishing the excessive reliance of investors and regulations on ratings. The chapter describes the main initiatives undertaken by global organizations as a result of such international agreement: G-20, Financial Stability Board, and IOSCO.

Keywords: failures; deficiencies; G-20; Financial Stability Board (FSB); IOSCO; competition; over-reliance; integrity; transparency; subprime crisis

Chapter.  9534 words. 

Subjects: Financial Markets

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