Rating Banks: Risk and Uncertainty in an Opaque Industry

37 Pages Posted: 7 Nov 2006

Date Written: May 2000


The pattern of disagreement between bond raters suggests that bank and insurance firms are inherently more opaque than other firms. Moody's and Standard and Poor's split more frequently over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from their assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. Our findings bear on both the existence and reform of bank regulation.

JEL Classification: G20, G21, G28

Suggested Citation

Morgan, Donald P., Rating Banks: Risk and Uncertainty in an Opaque Industry (May 2000). FRB of New York Staff Report No. 105, Available at SSRN: https://ssrn.com/abstract=933681 or http://dx.doi.org/10.2139/ssrn.933681

Donald P. Morgan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
Research Department
New York, NY 10045
United States
212-720-6573 (Phone)

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