Recent Financial Crises and Regulations on the Credit Rating Agencies

Abstract

Credit rating business firstly emerged in the United States in 1900s and became a part of global financial system together with globalization of financial markets as of mid-1970s. The bankruptcies of corporates such as Enron and Worldcom, and financial crises such as 1997 Asian crisis, Global financial crisis and the Eurozone sovereign debt crisis caused investors and public authorities to investigate the accuracy and reliability of the credit ratings. This study investigates the role of credit rating agencies in the global financial crisis and the Eurozone sovereign debt crisis, and then evaluates adequateness of the regulations on the credit rating agencies which the international bodies, the United States and the European Union have made. We evaluated that the new regulations on the credit rating agencies will probably succeed in increasing transparency and accountability of the credit rating agencies and decreasing over-reliance on credit rating agencies. However it does not seem possible that these new regulations will eliminate the conflicts of interest completely, increase the competition in the credit rating market and decrease the rating shopping in the short run.