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: Suggested Citation