Regulation of Credit Rating Agencies - Different Views and Solutions

Abstract

Credit rating agencies are an important element of the informational financial infrastructure, which is essential for the stability of the financial system. In the absence of conflicts of interest and the importance of the established reputation for the rating agencies, self-regulation is sufficient to guarantee high-accuracy ratings. The payment for ratings by issuers and their use in financial regulations create distorted incentives to pursue higher profits at the expense of the quality of ratings. The demonstrated failures of the rating agencies confirm the need for strict regulations to restore investor confidence in the ratings.