An Economic Analysis of Credit Rating Agency Business Models and Ratings Accuracy

Abstract

This paper analyses, from an economic perspective, the viability of different business models in providing accurate ratings of credit risk to investors. It considers several different business models for credit ratings agencies (CRAs), the currently dominant issuer-pays model, the investor-pays model, a public model and a platform model. This paper aims to generally inform the debate on CRAs and their business models; it does not make specific policy recommendations, nor is it a response to specific policy consultation.

Keywords: Credit ratings agencies, CRAs, ratings accuracy, business models

JEL Classification: G1, G28