Credit Rating Agencies and Regulatory Reform

Research Handbook on the Economics of Corporate Law, 2012, Forthcoming

San Diego Legal Studies Paper No. 12-082

30 Pages Posted: 18 Apr 2012  

Aline Darbellay

affiliation not provided to SSRN

Frank Partnoy

University of San Diego School of Law

Date Written: April, 18 2012

Abstract

This paper, a chapter in the forthcoming Research Handbook on the Economics of Corporate law, describes the leading research related to credit ratings, and assesses regulatory proposals related to ratings, including those in the Dodd-Frank Act of 2010. It explains how rating agencies have paradoxically become more profitable as the quality of their ratings has declined, including during the recent financial crisis.

We focus on two major areas of reform: oversight and accountability. The Dodd-Frank Act potentially advanced the oversight goal by authorizing a new regulatory body to regulate rating agency practices. It also included accountability reforms, including new liability provisions. We describe the advantages and disadvantages of these reforms. We also assess what is perhaps the most important ratings provision in the Dodd-Frank Act: the requirement that regulators remove references to ratings in regulation.

Ratings regulation will remain an important area for scholarly debate as many aspects of the legislative reform require additional study or regulatory implementation. This chapter is intended to be a resource for scholars, regulators, and practitioners as these issues arise.

Keywords: Credit ratings, credit rating agencies, regulation, reform, Dodd-Frank Act, securities laws, oversight, accountability, liability, derivatives, structured finance, credit derivative

JEL Classification: D40, D43, G2, G28, K20, K22, L10, L13, L15

Suggested Citation

Darbellay, Aline and Partnoy, Frank, Credit Rating Agencies and Regulatory Reform (April, 18 2012). Research Handbook on the Economics of Corporate Law, 2012, Forthcoming; San Diego Legal Studies Paper No. 12-082. Available at SSRN: https://ssrn.com/abstract=2042111

Aline Darbellay (Contact Author)

affiliation not provided to SSRN ( email )

Frank Partnoy

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260-2352 (Phone)
619-260-4180 (Fax)

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