Credit Rating Agency

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Credit Rating Agency

A company that provides investors with assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. A high rating indicates low risk and may therefore encourage investors to buy a security. Additionally, banks may only invest in securities with a high rating from two or more credit rating agencies. The SEC recognizes 10 firms as credit rating agencies; Fitch, S&P, and Moody's are the three most prominent. However, the methods of credit ratings agencies have been subject to criticism. For example, most agencies gave high-risk mortgage-backed securities top ratings until they defaulted at the collapse of the housing bubble.
References in periodicals archive ?
The ECB said that if bond issuers are allowed to switch credit rating agencies, ratings agencies could issue false ratings in order to gain more business.
The ECB has also backed proposals that the financial system be made less dependent on ratings agencies.
CNBS President/CEO Brian Hague agreed that national ratings agencies need to eliminate conflicts of interest like issuing ratings to paying customers.
Hague said he's never been a big fan of ratings agencies, recalling a job interview with former U.
If the ratings agencies have distorted their ratings simply because they wanted to gain lucrative fees, this could gravely undermine the credibility of the whole system of financial transactions.
Today, the value of credit ratings has been significantly diminished and the SEC has the authority to confront the situation head on and hold the credit ratings agencies accountable," said Kaitz.
Ratings cannot substitute for collateral because ratings agencies have no legal authority to enforce capital requirements, restrict transactions that could diminish capital or otherwise cause alien reinsurers to maintain financial strength.
According to the new proposals, ratings agencies should have to review ratings at least annually and key rating-agency staff should not take up top jobs at an entity they helped to rate until 18 months after the rating.
Recognizing that the credibility and reliability of credit ratings is heavily dependent on issuers providing accurate and adequate information to the credit ratings agencies, the Issuer Code of Standard Practices outlines issuer obligations in the credit rating process.
All of this suggests that companies should begin now to educate analysts and ratings agencies about the coming changes and what they believe will be the important measures and standards that will emerge from the new reporting requirements.
The information given by a company to ratings agencies necessarily involves a level of detail beyond its public disclosures which provide all material disclosure relating to the company's results and financial state.
Since the revisions to its research plan and governance were finalized in April 2002, NERA has received comprehensive historical ratings data from all three major ratings agencies - Fitch Ratings, Moody's Investors Service, and Standard & Poor's.