Given their role in the Financial Crisis of 2008, to what extent should Credit Rating Agencies be held liable to investors?

CRAs serve an important purpose. They have "become a public benefit that supports the whole financial system's interests."[1] They assess the risk that companies and governments will repay their debts or will be able to recoup their losses in the case of failure by looking at bonds and other securities they have issued. In addition to this they analyse the creditworthiness of businesses and governments. The risk connected to that securities transaction is subsequently communicated by a single rating provided by CRAs. CRA-rated securities are issued on a regular basis by big multinational enterprises and national governments all over the world.[2] Investors need the tools and skills necessary to evaluate the public and private information communicated by a rating. In these financial marketplaces, both buyers and sellers have the ability to significantly lower their transaction costs.[3] Credit rating agencies are used by millions of investors to determine the creditworthiness of certain financial products.[4] Despite the fact that these institutions play a crucial role in the financial sector, many people, investors, and organisations harshly blame the rating agencies, particularly for their influence in the subprime mortgage crisis of 2007–2008.[5] For this reason, there is now a debate on how to reform and regulate the agencies. The main points of contention are what to do about the business models of credit rating agencies and how to act in the interest of the investor and the market to create a more reliable market structure. To examine these concerns, this article will first examine the role of credit rating agencies, then explain their importance in the 2008 crisis. Afterwards, the business model of credit rating agencies will be examined and then the Dodd-Frank law and its effects on credit rating agencies will be explained. Finally, in the conclusion part, it will be explained how the problems can be solved.

WHAT ARE THE CRAS?

Learning everything there is to know about the services that CRAs sell is the first step in fully comprehending CRAs. Despite questions around their accuracy,[6] Credit ratings, which include evaluations of the backgrounds, forecasts, and contexts of credit issuers, are offered as "information products."[7] In order to determine how probable a default is to occur, credit raters examine the present and future stability of a debt issuer's business in the context of the market in which the issuer competes.[8] In addition to taking into account the issuer's business environment and company history, rating agencies also take into account previous, current, and future issues that issuers and investors may face.[9] Credit ratings are straightforward, which is precisely why investors find them to be so alluring. An astounding quantity of data is gathered, considered, and then transformed into a symbol that, in theory, provides the customer with a reliable indication of their chances of being reimbursed.[10]

By providing an assessment of the creditworthiness of securities products, CRAs serve as "financial gatekeepers." The CRAs use ratings to overcome information asymmetries between market players such as issuers, investors, and regulators.[11] As a result, CRAs are organisations created to assess the likelihood that a borrower would be unable to punctually fulfil its financial obligations, such as making interest payments and principal repayments.[12]

ROLE OF CRAS IN THE 2008 CRISIS

Credit rating agencies (CRAs) play a significant role in the financial markets due to their gatekeeping position in the credit industry and the regulatory dependence on their ratings in the United States. A rating on the basis of dependability is given to a debt obligation before it is offered, whether it be a stock, bond, or other, more complicated financial instrument.[13]

The US subprime market expanded significantly in the years before to the financial catastrophe.[14] Between 2003 and 2007, roughly 5 million subprime loans were created, these were securitized to a degree of up to two thirds.[15] Due to their misplaced belief in mortgage-backed assets, particularly subprime securities, investors and banks lost hundreds of billions of dollars.[16]

 Issuers started combining residential mortgages into MBSs and CDOs in the late 1990s.[17] These loans made to financially vulnerable customers are referred to as "subprime," which is a term for debt with a higher risk of default.[18] The enormous US housing bubble, which started in the late 1990s and lasted through mid-2006, was financed in part by the issuance of these bonds.[19] These loans' underlying finance was made available via the securitization process.[20] Different tranches, each of which would have a different rating, were created by the issuers to partition the default risk for mortgage-related securities.[21] Prior to any losses being suffered by the senior tranches, all losses would be borne by the junior tranches.[22] Through this procedure, issuers boosted their profits and helped the market crash.[23] Securitized loan pools and other CDOs, which were at the centre of the financial crisis, were reviewed by CRAs, who then provided ratings for them.[24] CRAs are held accountable in the second phase when investment banks, who took over the loan from the originator bank packaged those mortgages into intricate financial instruments like collateralized debt obligations (CDOs) secured by residential mortgage-backed securities (RMBS),[25] as well as complex investment vehicles (SIVs).[26] CDOs, or collateralized debt obligations, are essentially collections of loans that have been grouped together and classified according to risk levels; RMBS-backed CDOs were predominantly secured by such subprime loans.[27] on the other hand, SIVs are financial vehicles developed by banks to enable them to simultaneously transfer debt off of their books and avoid minimum capital requirements, which, by making it easier for them to recover huge investments in subprime CDOs, for example, are in place to protect resources in the event of significant losses.[28]

How did so many investors' portfolios end up with so many of these dangerous loans? They weren't seen as dangerous because they were highly ranked by credit rating agencies. Because of their high ratings, CRAs were crucial in facilitating the market's interaction with subprime loans; otherwise, the originator banks would not have been allowed to sell such loans and would have been forced to hold them on their books. This apparently would have reduced banks' willingness to lend in the first place because they are normally risk-averse entities;[29] hence, subprime loans would not have likely transformed the credit market to such a great extent.

MBS and CDO ratings turned out to be very positive.[30] The mortgage default rates that underpinned many MBSs and CDOs sharply surged in 2006 as home values started to fall.[31] Nevertheless, when losses started to show on those securities, CRAs did not promptly downgrade them, which caused the crisis to worsen.[32] The recent financial crisis was significantly influenced by the erratic and inaccurate ratings. It quickly became evident that relying only on a credit rating was a risky approach to make financial decisions and issue loans.[33] The question of how and why such optimistic ratings were granted to dubious investments remains unresolved. By looking at CRA business model and conflicts of interest, those issues may be fully explained.

CONFLICT OF INTEREST

Investors pined to Moody's and other rating agencies for guidance on the propensity of corporate bonds to fail, paying membership fees to gain access to the useful information.[34] Rating agencies instead focused their services on the issuers of securities under a "issuer-pays" business model as a result of the expansion of capital markets, which made the subscriber-paid business model less viable.[35] The issuer-pays approach was also influenced by the complexity of securities and the need for additional resources than subscription fees alone could provide.[36]

The regulation of conflicts of interest is among the most crucial facets of CRA governance. The "issuer-pays" business model will inevitably increase the risk that an issuer may exert financial pressure to boost the rating, or that the credit rating agency will sense this pressure.[37] The fact that bond issuers choose and pay for CRAs, however, means that they have a financial incentive to comply with their preferences. This creates possible conflicts of interest.[38] This kind of overdependence will inevitably lead to inaccurate and inflated ratings. In actuality, issuers place more value on the "AAA" rating than they do on accurate ratings.[39] Investors' worries about payment default will decrease as a security's rating rises, and liquidity will increase and issuers' cost of capital will decrease. Anyone who depends on ratings in any way might be inadvertently taking a risk for which they are not getting rewarded.[40]

The three biggest rating companies in the US are Fitch, Moody's Investor Services, and Standard and Poor's.[41] About half of all credit ratings are reportedly issued by Standard & Poor's, and the "big three" collectively are said to be responsible for 98% of all ratings.[42] The majority of each major CRA's income comes from agreements with securities issuers to grade their products.[43] The majority of the time, companies that issue securities give rating agencies private or confidential information about their operations and securities.[44] The agencies utilise this data to create a creditworthiness rating and then release their conclusion to the public.[45]

Because of the inherent conflict of interest between CRAs and the issuers of the securities they are being paid to grade, the "issuer-pays" business model is problematic.[46] In general, the main rating agencies minimise the importance of this issue and assert that their reputations are far too precious for them to give in to any inherent biases in their business model.[47] The methods that rating agencies employ to determine a credit rating are occasionally disclosed, but frequently they simply give a cursory explanation of the credit analysis, leaving most of the basis for a rating up to doubt.[48]

Despite the reliance of the securities markets on the "issuer-pays" fee model, empirical research have shown that investor-paid ratings provided CRAs with a higher incentive to post ratings revisions more quickly than the issuer-paid compensation system.[49] These results suggest that CRAs should be compensated in a manner that is commensurate with the value of the information that they offer to investors (i.e. subscribers) However, as they provide a public benefit to the financial markets, acting as facilitators, they should be compensated for their informative service through a set system of revenues.[50] This type of payment may lessen the widespread and arbitrary use of ratings as a contractual indicator of a borrower's creditworthiness. Furthermore, it may prevent the bond's potential to earn an inflated rating or reliance on the issuer fees model. Because of this, income shouldn't be seen as payment for the CRAs' "seals of approval" for businesses that need access to the financial markets. Therefore, the payment should be viewed as revenue for the intermediate financial service offered to issuers.[51]

Regulations should be included in the CRAs' business model to lessen the dangers of erroneous ratings. As autonomous, self-supporting, and non-profit financial gatekeepers, CRAs might benefit from some type of reform. In this situation, Pacces and Romano noted that the advantages of a damage ceiling to reduce CRAs' exposure to responsibility include “disallowing profits from rating inflation without discouraging ratings altogether”.[52] An alternate strategy would be to tie CRA profits (rates for its services) to investor assessment. CRAs would not be eligible to payments in the event of negative feedback, and the market would thus assess the reliability of ratings. Due to the inherent interests of biased customers, this approach may appear challenging to execute; nonetheless, the ratings business should have money, which CRAs may only obtain if they provide fair assessments.

The systemic risk in the financial markets has been made worse by the growing dependence on CRAs' performances, which has resulted in deceptive techniques to quantify the risks of asset-backed securities.[53] Particularly, it has been noted that rating agencies skim over hazards when deciding how to rate asset-backed securities since they don't adequately account for counterparty risk.[54] The shortcomings of the methods used to rate securities were made clear by the financial crisis of 2007. They frequently paid little attention to the underlying asset pool's quality and instead concentrated too much on its profitability.[55] The list of previous CRA failings highlighted the idea that investor choices or issuers' access to financing shouldn't be impacted by credit ratings. In contrast, they must offer impartial evaluations of financial instruments.

DODD-FRANK ACT

The claim of legal immunity has been made successfully by CRAs for decades. Credit reporting agencies contend that because credit scores are free speech statements, the First Amendment should provide them with legal protection.[56] Additionally, CRAs warn investors not to depend on their ratings and insert extensive disclaimers in their assessments.[57] Due to the historical effectiveness of these defences, CRAs were essentially immune from legal responsibility before the Dodd-Frank Act was passed.[58] Reducing regulatory dependence on CRAs was one of the main objectives of the Dodd-Frank Act. The Act's Section 939 expressly mandates the elimination of any statutory references to credit ratings by removing terms like "credit rating entities" and "investment grade."[59] Every federal agency must review its regulations for mentions of CRAs in accordance with Section 939A of the Act, and "modify any such regulations identified... to remove any reference or requirement of reliance on credit ratings and to substitute in such regulations" a different measure of creditworthiness.[60]

Some organisations, including the National Credit Union Administration (NCUA) and Federal Deposit Insurance Corporation (FDIC), have effectively moved away from relying on ratings.[61] This is due to the regulators' simultaneous implementation of transition programmes aimed at resolving the regimes' stickiness.[62] In completing due diligence, the FDIC has advised banks to stop using ratings and instead determine a security's creditworthiness by determining if the issuer has "sufficient capacity to make financial commitments under the security over the estimated life of the asset or exposure."[63] While still allowing analysts to take into account NRSRO ratings, the NCUA, like the FDIC, also offers helpful methodological guidance.[64] While the FDIC and NCUA may serve as an example of what Dodd-Frank intended, namely the face elimination of references to NRSRO ratings, other agencies have fallen short of even this bare-minimum standard of compliance. For instance, 939A's standards haven't even been met by the SEC.[65] The Federal Reserve also provided evidence of the stickiness of credit ratings by mandating that certain forms of loan collateral be "registered with the SEC as an NRSRO for issuers of asset backed securities" until a 2018 amendment eliminated the reference.[66]

This brief study demonstrates that while Dodd-Frank was mainly effective in eliminating direct references to NRSROs and credit ratings, it was ineffectual in actually lowering ratings dependence. Agencies still use ratings in investor research and portfolio evaluation even if the taboo phrases have been removed.[67] Since 939A did not offer a standard for agencies to adopt to fill the vacuum left by the requirement to remove references to credit ratings, it left it up to the regulators to decide how the regulations would alter, which cause an issue.[68] If the individuals charged with removal and replacement did not have a better notion of what to substitute the standard of credit ratings with, then the only thing that changed in the end were the words rather than the procedures.[69] Furthermore, 939A's methodology overlooked efficiency, a crucial factor in why so many investors depended on credit ratings. Because it was more affordable to outsource the credit research to the private sector's "experts," who could much more readily overcome the information asymmetry, many investors relied on CRAs.[70] These flaws aid in explaining why the FDIC, NCUA, and SEC all still permit investors to take into account the ratings given to securities by NRSROs.

CONCLUSION

The reason for the 2008 crisis is not only the ambition of the credit rating agencies to make a profit, but also the main reason is a banking crisis created by the cooperation of investment banks, credit rating agencies and banks. However, in the light of the above information, it is clearly seen that the impact of credit rating agencies on the 2008 crisis is enormous. Although the Dodd-Frank law was enacted after the crisis and the credit rating agencies were regulated to a certain extent, this was not enough because the main problem is the business model of the credit rating agencies, and this situation creates a conflict of interest contrary to the nature of the credit rating agencies. The main issue to be regulated is the business model of credit rating agencies.

If the legislators want to create a more secure market environment, the credit rating agencies really have to take their place in the financial system in the role of gatekeepers. In this way, the effects of possible future crises will be overcome with little loss thanks to the influence of credit rating agencies. However, this can happen in a financial system in which credit rating agencies make completely objective and accurate ratings. As long as the conflict of interest is not eliminated, the credit rating agencies will continue to benefit from this situation and this will continue to affect the credit ratings. In addition, if the business model of credit rating agencies is changed and the investor payment model is used as a new business model instead, these credit rating agencies will be forced to act in favour of the investor and the market, and a more secure financial system will be created.

As a result, the world's economic wheels are spinning thanks to money. But unless the right financial systems are created and supported by lawmakers, crises will be inevitable. so financial systems and money should always be free and neutral. Likewise, financial institutions such as credit rating agencies should be free and impartial. Only in this way can states have a properly functioning financial system.

REFERENCES

Harold G, Bond Ratings as an Investment Guide: An Appraisal of Their Effectiveness (Ronald Press Company 1938)

Langohr H and Langohr P, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant (1. Aufl.

1 edn, New York: Wiley 2010)

Pozen R and Shiller RJ, Too Big to Save? How to Fix the U.S. Financial System (Wiley 2009)

Kiff J and others, 'The Uses and Abuses of Sovereign Credit Ratings',  (2010)

Walker GA, 'The Global Credit Crisis and Regulatory Reform' in MacNeil IG and Brien J (eds), The Future of Financial Regulation (1 edn, Hart Publishing 2010)

Coors C, 'Credit Rating Agencies – Too Big to Fail?' (2012)

Covitz D and Harrison P, 'Testing Conflicts of Interest at Bond Rating Agencies with Market Anticipation : Evidence that Reputation Incentives Dominate' (2003) 2003 Finance and Economics Discussion Series 1

Dittrich F, 'The Credit Rating Industry: Competition and Regulation' (2007) SSRN Electronic Journal

Ellsworth LP and Porapaiboon KV, 'Credit rating agencies in the spotlight: a new casualty of the mortgage meltdown' (2009) 18 Business law today 35

Flannery M, Houston J and Partnoy F, 'Credit Default Swap Spreads as Viable Substitutes for Credit Ratings' (2010) 158 University of Pennsylvania Law Review

Frost CA, 'Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies' (2007) 22 Journal of Accounting, Auditing & Finance 469

Hartlage A, ''Never Again', Again: A Functional Examination of the Financial Crisis Inquiry Commission' (2012)

Heggen JW, 'Not always the world's shortest editorial: Why credit-rating-agency speech is sometimes professional speech' (2011) 96 Iowa law review 1745

Krebs J, 'The Rating Agencies: Where We Have Been and Where Do We Go From Here?' (2009)

Lynch TE, 'Deeply and persistently conflicted: credit rating agencies in the current regulatory environment' (2009) 59 Case Western Reserve law review 227

Mathis J, McAndrews J and Rochet J-C, 'Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?' (2009) 56 Journal of monetary economics 657

Milidonis A, 'Compensation incentives of credit rating agencies and predictability of changes in bond ratings and financial strength ratings' (2013) 37 Journal of banking & finance 3716

Mollengarden Z, 'Credit Ratings, Congress, and Mandatory Self Reliance' (2018) 36 Yale law & policy review 473

Mulligan CM, 'From AAA to F: how the credit rating agencies failed America and what can be done to protect investors' (2009) 50 Boston College law review 1275

Murphy AB, 'Credit rating immunity? How the hands-off approach toward credit rating agencies led to the subprime credit crisis and the need for greater accountability' (2010) 62 Oklahoma law review 735

Pacces AM and Romano A, 'A Strict Liability Regime for Rating Agencies: Strict Liability for Rating Agencies' (2015) 52 American business law journal 673

Partnoy F, 'What’s (still) wrong with credit ratings?' (2017) 92 Washington law review 1407

Pendergraft ES, 'Section 933: nimble private regulation of the capital market gatekeepers' (2012) 39 Florida State University law review 511

Porter T, 'The new masters of capital: American bond rating agencies and the politics of creditworthiness' (2005) 10 New Political Economy 427

Scalet S and Kelly TF, 'The Ethics of Credit Rating Agencies: What Happened and the Way Forward' (2012) 111 Journal of Business Ethics 477

White LJ, 'Markets: The Credit Rating Agencies' (2010) 24 The Journal of economic perspectives 211

Wolfson J and Crawford C, 'Lessons From The Current Financial Crisis: Should Credit Rating Agencies Be Re-Structured?' (2010) 8 Journal of business & economics research (Littleton, Colo) 85

Act D-F, Dodd-Frank Wall Street Reform and Consumer Protection Act (US Goverment 2010)

Bernanke BS, 'The Subprime Mortgage Market' (Federal Reserve Board May 17, 2007) <https://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm> accessed 31/10/2022

Duca JV, 'Subprime Mortgage Crisis' (Federal Reserve History 22/11/2013) <https://www.federalreservehistory.org/essays/subprime-mortgage-crisis> accessed 03/11

Marriage M, 'Ex-Moody’s Staff Raise Alarm over ABS “Meltdown' (Financial Times, 10 November 2013) <https://www.ft.com/content/6b8cfc2c-4861-11e3-a3ef-00144feabdc0> accessed 06/11

Matz D, 'Guidance Investing in Securities without Reliance on Credit Ratings' (National Credit Union Administration, June 2013) <https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/guidance-investing-securities-without-reliance-credit-ratings> accessed 06/11/2022

SEC, 'Summary Report of Issues Identified in the

Commission Staff’s Examinations of Select Credit Rating Agencies' (UNITED STATES SECURITIES AND EXCHANGE COMMISSION, July 2008) <https://www.sec.gov/files/craexamination070808.pdf> accessed 23/11/2022

Taibbi M, 'The Last Mystery of the Financial Crisis' (Rolling Stone, June 19, 2013) <https://www.rollingstone.com/politics/politics-news/the-last-mystery-of-the-financial-crisis-200751/> accessed 03/11/2022

[1] Steven Scalet and Thomas F. Kelly, 'The Ethics of Credit Rating Agencies: What Happened and the Way Forward' (2012) 111 Journal of Business Ethics 477

[2]Ibid And Tony Porter, 'The new masters of capital: American bond rating agencies and the politics of creditworthiness' (2005) 10 New Political Economy 427 

[3] Scalet and Kelly, 'The Ethics of Credit Rating Agencies: What Happened and the Way Forward' 478

[4] Timothy E. Lynch, Deeply and Persistently Conflicted: Credit Rating Agencies in the Current Regulatory Environment, 59 CASE W. RES. L. REV. 227, 242 (2009)

[5]SEC, 'Summary Report of Issues Identified in the

Commission Staff’s Examinations of Select Credit Rating Agencies' (UNITED STATES SECURITIES AND EXCHANGE COMMISSION, July 2008) <https://www.sec.gov/files/craexamination070808.pdf> accessed 23/11/2022

[6] Mark Flannery, Joel Houston and Frank Partnoy, 'Credit Default Swap Spreads as Viable Substitutes for Credit Ratings' (2010) 158 University of Pennsylvania Law Review

[7] Langohr H. M. & Langohr P. T. (2008). The rating agencies and their credit ratings : what they are how they work and why they are relevant. Wiley.

[8] Ibid at 7.

[9] Ibid at 7-8.

[10] G. Harold, Bond Ratings as an Investment Guide: An Appraisal of Their Effectiveness (Ronald Press Company 1938) p 49-50

[11] Fabian Dittrich, 'The Credit Rating Industry: Competition and Regulation' (2007) SSRN Electronic Journal p 10

[12] John Kiff and others, 'The Uses and Abuses of Sovereign Credit Ratings',  (2010)

[13] Jonathan W. Heggen, 'Not always the world's shortest editorial: Why credit-rating-agency speech is sometimes professional speech' (2011) 96 Iowa law review 1745

[14] Ben S. Bernanke, 'The Subprime Mortgage Market' (Federal Reserve Board May 17, 2007) <https://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm> accessed 31/10/2022

[15] George A. Walker, 'The Global Credit Crisis and Regulatory Reform' in Iain G. MacNeil and Justin Brien (eds), The Future of Financial Regulation (1 edn, Hart Publishing 2010)

[16] Larry P. Ellsworth and Keith V. Porapaiboon, 'Credit rating agencies in the spotlight: a new casualty of the mortgage meltdown' (2009) 18 Business law today 35

[17] Joshua Krebs, 'The Rating Agencies: Where We Have Been and Where Do We Go From Here?' (2009) at 137.

[18] John V. Duca, 'Subprime Mortgage Crisis' (Federal Reserve History 22/11/2013) <https://www.federalreservehistory.org/essays/subprime-mortgage-crisis> accessed 03/11/2022

[19] Lawrence J. White, 'Markets: The Credit Rating Agencies' (2010) 24 The Journal of economic perspectives 211 at 212

[20] Ibid at 220

[21] Ibid at 220

[22] Ibid at 220

[23] Krebs, 'The Rating Agencies: Where We Have Been and Where Do We Go From Here?' at 137-138

[24] Ellsworth and Porapaiboon, 'Credit rating agencies in the spotlight: a new casualty of the mortgage meltdown'

[25] Heggen, 'Not always the world's shortest editorial: Why credit-rating-agency speech is sometimes professional speech' at 1748

[26] Matt Taibbi, 'The Last Mystery of the Financial Crisis' (Rolling Stone, June 19, 2013) <https://www.rollingstone.com/politics/politics-news/the-last-mystery-of-the-financial-crisis-200751/> accessed 03/11/2022

[27] Heggen, 'Not always the world's shortest editorial: Why credit-rating-agency speech is sometimes professional speech' at 1748

[28] Taibbi, 'The Last Mystery of the Financial Crisis'

[29] Andrew Hartlage, ''Never Again', Again: A Functional Examination of the Financial Crisis Inquiry Commission' (2012) at 454

[30] White, 'Markets: The Credit Rating Agencies' at 221

[31] Ibid at 212

[32] Ibid at 221

[33] Herwig Langohr and Patricia Langohr, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant (1. Aufl.

1 edn, New York: Wiley 2010) at 364

[34] Caitlin M. Mulligan, 'From AAA to F: how the credit rating agencies failed America and what can be done to protect investors' (2009) 50 Boston College law review 1275 at 1279

[35] Ibid at 1279

[36] Timothy E. Lynch, 'Deeply and persistently conflicted: credit rating agencies in the current regulatory environment' (2009) 59 Case Western Reserve law review 227 at 239

[37] Corinna Coors, 'Credit Rating Agencies – Too Big to Fail?' (2012) Journal of International Banking Law and Regulation 2012, 27(1), 27, Available at SSRN: https://ssrn.com/abstract=2739234

[38] Daniel Covitz and Paul Harrison, 'Testing Conflicts of Interest at Bond Rating Agencies with Market Anticipation : Evidence that Reputation Incentives Dominate' (2003) 2003 Finance and Economics Discussion Series 1 Board of Governors of the Federal Reserve System Research Paper Series No 2003–68

[39] Carol Ann Frost, 'Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies' (2007) 22 Journal of Accounting, Auditing & Finance 469

[40] Lynch, 'Deeply and persistently conflicted: credit rating agencies in the current regulatory environment' at 247

[41] Mulligan, 'From AAA to F: how the credit rating agencies failed America and what can be done to protect investors' at 1279

[42] Ibid at 1279

[43] Lynch, 'Deeply and persistently conflicted: credit rating agencies in the current regulatory environment' at 234

[44] Ibid at 237

[45] Ibid at 237

[46] Ibid at 235

[47] Ibid at 235

[48] Ibid

[49] Andreas Milidonis, 'Compensation incentives of credit rating agencies and predictability of changes in bond ratings and financial strength ratings' (2013) 37 Journal of banking & finance 3716 at 3719

[50] Jérome Mathis, James McAndrews and Jean-Charles Rochet, 'Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?' (2009) 56 Journal of monetary economics 657 at 669

[51] Josh Wolfson and Corinne Crawford, 'Lessons From The Current Financial Crisis: Should Credit Rating Agencies Be Re-Structured?' (2010) 8 Journal of business & economics research (Littleton, Colo) 85

[52] Alessio M. Pacces and Alessandro Romano, 'A Strict Liability Regime for Rating Agencies: Strict Liability for Rating Agencies' (2015) 52 American business law journal 673

[53] Eric S. Pendergraft, 'Section 933: nimble private regulation of the capital market gatekeepers' (2012) 39 Florida State University law review 511

[54] Madison Marriage, 'Ex-Moody’s Staff Raise Alarm over ABS “Meltdown' (Financial Times, 10 November 2013) <https://www.ft.com/content/6b8cfc2c-4861-11e3-a3ef-00144feabdc0> accessed 06/11/2022

[55] A. Brooke Murphy, 'Credit rating immunity? How the hands-off approach toward credit rating agencies led to the subprime credit crisis and the need for greater accountability' (2010) 62 Oklahoma law review 735

[56] Langohr and Langohr, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant at 182

[57] R. Pozen and R.J. Shiller, Too Big to Save? How to Fix the U.S. Financial System (Wiley 2009) at 64

[58] Langohr and Langohr, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant at 182

[59] Dodd-Frank Act, Dodd-Frank Wall Street Reform and Consumer Protection Act (US Goverment 2010) sec. 939

[60] Ibid sec. 939A

[61] Frank Partnoy, 'What’s (still) wrong with credit ratings?' (2017) 92 Washington law review 1407 at 1416

[62] Ibid at 1419-1420

[63] Ibid

[64] Debbie Matz, 'Guidance Investing in Securities without Reliance on Credit Ratings' (National Credit Union Administration, June 2013) <https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/guidance-investing-securities-without-reliance-credit-ratings> accessed 06/11/2022

[65] Partnoy, 'What’s (still) wrong with credit ratings?' at 1422-1423

[66] Ibid at 1422

[67] Ibid

[68] Zachary Mollengarden, 'Credit Ratings, Congress, and Mandatory Self Reliance' (2018) 36 Yale law & policy review 473 at 506

[69] Ibid

[70] Ibid at 508