The Systemic Regulation of Credit Rating Agencies and Rated Markets

IMF Working Paper 09/129

37 Pages Posted: 23 Jun 2009

See all articles by Amadou Nicolas Racine Sy

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Multiple version iconThere are 2 versions of this paper

Date Written: June 19, 2009

Abstract

Credit ratings have contributed to the current financial crisis. Proposals to regulate credit rating agencies focus on micro-prudential issues and aim at reducing conflicts of interest and increasing transparency and competition. In contrast, this paper argues that macro-prudential regulation is necessary to address the systemic risk inherent to ratings. The paper illustrates how financial markets have increasingly relied on ratings. It shows how downgrades have led to systemic market losses and increased illiquidity. The paper suggests the use of “ratings maps” and stress-tests to assess the systemic risk of ratings, and increased capital or liquidity buffers to manage such risk.

Keywords: rating agencies, financial crises, structured credit products, macro-prudential, micro-prudential, regulation, systemic risk, procylicality

JEL Classification: G01, G18, G24, G28

Suggested Citation

Sy, Amadou Nicolas Racine, The Systemic Regulation of Credit Rating Agencies and Rated Markets (June 19, 2009). IMF Working Paper 09/129, Available at SSRN: https://ssrn.com/abstract=1422699 or http://dx.doi.org/10.2139/ssrn.1422699

Amadou Nicolas Racine Sy (Contact Author)

International Monetary Fund (IMF) - International Capital Markets Department ( email )

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Brookings Institution ( email )

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