Market Dynamics Associated with Credit Ratings: A Literature Review

40 Pages Posted: 16 Nov 2005

See all articles by Fernando González

Fernando González

European Central Bank (ECB)

François Haas

Banque de France

Mattias Persson

Sveriges Riksbank

Liliana Toledo

Banco de España

Roberto Violi

Bank of Italy

Martin Wieland

Deutsche Bundesbank

Carmen Zins

Deutsche Bundesbank

Date Written: June 2004

Abstract

This paper investigates the potential impact of the growing influence of the opinions of credit rating agencies (CRAs) on market dynamics. This impact can be seen as a consequence of the information content of the ratings themselves or indirectly as a consequence of the hardwiring of ratings into regulatory rules, management mandates, bond covenants, etc. Rating agencies who strive to provide credit assessments that remain broadly stable through the course of the business cycle have been themselves affected as the growing reliance on rating mean that they are increasingly expected to satisfy a widening range of constituencies with different and sometimes conflicting interests. They have responded to this challenge largely by adding more products to their traditional product palette but also through modifications in the rating process. It is however too early to say whether these changes mean a fundamental shift in their approach to credit risk measurement.

Keywords: Credit rating agencies, ratings, market dynamics, rating triggers, rating methodologies

JEL Classification: G10, G28, G29

Suggested Citation

González, Fernando and Haas, François and Persson, Mattias and Toledo, Liliana and Violi, Roberto and Wieland, Martin and Zins, Carmen, Market Dynamics Associated with Credit Ratings: A Literature Review (June 2004). ECB Occasional Paper No. 16. Available at SSRN: https://ssrn.com/abstract=752065

Fernando González (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

François Haas

Banque de France ( email )

Paris
France

Mattias Persson

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE- 103 37 Stockholm
Sweden

Liliana Toledo

Banco de España ( email )

Madrid 28014
Spain

Roberto Violi

Bank of Italy ( email )

91 via Nazionale
Rome, rome 00184
Italy
+390647924108 (Phone)

Martin Wieland

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Carmen Zins

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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