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Credit Ratings And Structured Finance | Vox, Cepr Policy Portal

by voxeu.org posted 1month ago 12 views
The poor performance of credit ratings of structured finance products in the financial crisis has prompted investigation into the role of credit rating agencies. This column discusses the incidence of rating inflation when such an agency both designs and rates securities, highlighting the role of demand from investors that face rating constraints, such as banks, pension funds, or insurance companies. It finds that ratings are accuratewhen these constraints are very tight or very lax, but inflated otherwiseWhen theseconstraints are very tight or very lax, there may be no rating inflation.

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