infonet-economy

Some eight years on from the Credit Rating Agency Reform Act of 2006 it seems clear that this measure has achieved little in the way of substantive change in the credit rating industry. The new law did not prevent the series of rating failures that have contributed to the global financial crisis that started in summer 2007.

What lies at the heart of this regulatory ineffectiveness? The analytical processes and business model that dominates rating have not changed in any significant way, and even post-crisis regulatory efforts may come to nothing.

We contend that the failure to substantively regulate the credit rating agencies reveals much about how credit rating really works, and how the agencies interact with governments, transnational regulatory bodies, and market institutions. We offer an alternative to the widely held but simplistic view of the rating system as a product of regulation, and explore the reasons for the persistent dominance and seeming immunity of the credit rating agency oligopoly.