Credit Rating Agencies on the Watch List Analysis of European Regulation
by Garcia Alcubilla, Raquel; Ruiz del Pozo, JavierFormat: Hardcover
Pub. Date: 2012-05-23
Publisher(s): Oxford University Press
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Summary
Credit rating agencies have been criticized for their role in the financial crisis by understating credit risk. The US subprime mortgage crisis highlighted the systematic relevance of rating agencies and the deficiencies in their activities; this led to an international consensus to regulate the rating business. Written by those involved in developing European Legislation, this book explains EU Regulation in the context of the global initiatives undertaken by the G20, the Financial Stability Board, and IOSCO to address failures within the rating industry.
Table of Contents
| List of Tables | p. xiii |
| List of Abbreviations | p. xiv |
| Note to the Reader | p. xvi |
| Introduction | p. 1 |
| A History of Ratings and the Role of Rating Agencies | p. 1 |
| Financial Markets Prior to Rating Agencies | p. 1 |
| The Predecessors of Rating Agencies | p. 2 |
| The Rise of Rating Agencies | p. 4 |
| Role of Rating Agencies | p. 5 |
| Rating Industry | p. 6 |
| Characteristics | p. 6 |
| Worldwide | p. 7 |
| Europe | p. 10 |
| Use of Ratings | p. 11 |
| Use by Market Participants | p. 12 |
| Use in Private Contracts | p. 13 |
| Use in Regulation | p. 16 |
| Rating Process | p. 18 |
| Rating Process for Traditional Ratings | p. 18 |
| Rating Process for Structured Finance Instruments | p. 23 |
| Financial Crisis: Global Regulatory Reaction | p. 27 |
| Deficiencies in the Rating Industry | p. 27 |
| Introduction | p. 27 |
| Failures in Integrity | p. 28 |
| Failures in Reliability | p. 28 |
| Failures in Transparency | p. 30 |
| Lack of Competition | p. 30 |
| Global Initiatives | p. 32 |
| Introduction | p. 32 |
| G-20 | p. 33 |
| Financial Stability Board | p. 34 |
| IOSCO | p. 36 |
| Over-reliance on Ratings | p. 41 |
| Analysis of the EU Credit Rating Agencies Regulation | p. 47 |
| Background | p. 47 |
| European Commission's Communication | p. 47 |
| ESMA's Reports on Rating Agencies | p. 48 |
| European Commission's Regulation Proposal | p. 49 |
| Supervisory Structure | p. 51 |
| Colleges of Supervisors | p. 51 |
| ESMA | p. 53 |
| Definitions and Concepts | p. 58 |
| Credit Rating and Rating Category | p. 58 |
| Credit Rating Activities and Ancillary Services | p. 64 |
| Credit Rating Agency and Group of Rating Agencies | p. 65 |
| Persons Involved in Rating Activities | p. 67 |
| Rated Entities and Rated Instruments | p. 68 |
| Other Definitions | p. 70 |
| Scope | p. 71 |
| Ratings under the Scope | p. 71 |
| Ratings and Credit Scores Outside the Scope | p. 75 |
| Use of Ratings for Regulatory Purposes | p. 83 |
| Introduction | p. 83 |
| Basel and Capital Requirements Directive | p. 85 |
| ECAIs Recognition Process under the CRD | p. 87 |
| Eligibility as Collateral by European Central Bank | p. 97 |
| Registration Process and Requirements | p. 99 |
| Rating Agencies Operating in Europe in 2010 | p. 99 |
| Scope for Registration | p. 100 |
| Registration Process | p. 100 |
| Withdrawal of Registration | p. 107 |
| Notification and Publication | p. 108 |
| Material Changes to Initial Conditions | p. 109 |
| Supervision and Enforcement | p. 110 |
| Introduction | p. 110 |
| Supervision by ESMA | p. 113 |
| Infringements | p. 119 |
| Sanctioning Regime | p. 120 |
| Substantive Requirements | p. 130 |
| Organization and Governance | p. 130 |
| Business Activities and Resources | p. 143 |
| Independence and Conflicts of Interest | p. 165 |
| Methodologies, Models, and Key Assumptions | p. 183 |
| Disclosure and Presentation of Ratings | p. 200 |
| Transparency of Rating Agencies' Activities, Policies, and Procedures | p. 215 |
| Use of Non-EU Ratings in the EU | p. 227 |
| Procedures Set Out by the CRA Regulation | p. 228 |
| Systemic Importance | p. 229 |
| Endorsement | p. 229 |
| Scope | p. 229 |
| Conditions | p. 230 |
| Responsibility of the Endorsing CRA | p. 230 |
| Application for Endorsement | p. 231 |
| Approval of Endorsement and Endorsing Activity | p. 233 |
| Changes to Endorsing Regime | p. 234 |
| Certification Based on Equivalence | p. 234 |
| Scope | p. 234 |
| Process | p. 235 |
| Application for Certification | p. 236 |
| Sanctioning Regime | p. 237 |
| ESMA's Methodology to Assess Equivalence | p. 238 |
| ESMA's Advice on the Equivalence Between the US and EU Frameworks | p. 239 |
| European Commission's Equivalence Decision on Japan | p. 241 |
| Relationship Between Endorsement and Certification Based on Equivalence | p. 241 |
| Cooperation Arrangements | p. 244 |
| Future Developments | p. 245 |
| Rethinking Business Models | p. 246 |
| Investor-Pays Model | p. 247 |
| Public Utility Model | p. 249 |
| Payment-Upon-Results Model | p. 251 |
| Hiring Agent Model | p. 251 |
| Over-Reliance | p. 253 |
| Competition | p. 254 |
| Civil Liability | p. 255 |
| Sovereign Ratings | p. 257 |
| Global Consistency in Regulation and Oversight of Rating Agencies | p. 258 |
| Regulatory Consistency | p. 258 |
| Oversight Coordination | p. 260 |
| Overall Conclusions | p. 260 |
| Appendices | |
| The European System of Financial Supervisors | p. 263 |
| ESMA's Governance Structure and Resources | p. 266 |
| Mapping Factors Under CRD | p. 268 |
| US Legislation on CRAs | p. 272 |
| Japanese Legislation on CRAs | p. 279 |
| Glossary | p. 283 |
| Bibliography | p. 286 |
| Index | p. 291 |
| Table of Contents provided by Ingram. All Rights Reserved. |
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