Regulating Credit Rating Agencies in the European Union: Lessons from Behavioural Science

The Dovenschmidt Quarterly 2013, No.1 (Forthcoming)

36 Pages Posted: 7 Dec 2012

See all articles by Fabian Amtenbrink

Fabian Amtenbrink

Erasmus University Rotterdam - Erasmus School of Law

Klaus Heine

Erasmus University Rotterdam (EUR), Erasmus School of Law

Date Written: December 5, 2012

Abstract

Since the beginning of the global financial and economic crisis, the search for its causes has been in full flight on both sides of the Atlantic. Inter alia, fundamental failures in the evaluation of risk and the role that Credit Rating Agencies (CRAs) play in the assessment of credit risk are discussed. More specifically, the question is raised as to what the role of CRAs is in the financial markets, why this role may be problematic and how the main weaknesses of the present system can be addressed in the European Union (EU) and elsewhere. This contribution does not aim to provide a discussion of all theoretical aspects that might be involved in an economic analysis of CRAs, but to better understand the main behavioural economics and normative arguments that may be related. Thereby, the current EU regulatory framework on CRAs and credit ratings will be scrutinized. The basic hypothesis of this contribution is that the current and proposed future EU regulatory framework does not fully succeed in effectively tackling failures in the CRA market, because insights from behavioural economics are widely neglected.

Keywords: Credit Rating Agencies, European Union, Regulation, Behavioural science, behavioural economics, rating methodology, lulling effect, neuroeconomics, herd behaviour, psychology of advice, overreliance, due diligence, De Larosière Report, Capital Requirements Directive, ESMA, Regulation 1060/2009

JEL Classification: G21, G18

Suggested Citation

Amtenbrink, Fabian and Heine, Klaus, Regulating Credit Rating Agencies in the European Union: Lessons from Behavioural Science (December 5, 2012). The Dovenschmidt Quarterly 2013, No.1 (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2185383

Fabian Amtenbrink (Contact Author)

Erasmus University Rotterdam - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands
+31104081573 (Phone)

Klaus Heine

Erasmus University Rotterdam (EUR), Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

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