Credit Rating Agencies

This chapter explores the regulation of credit ratings of corporations and structured finance products before and after the subprime and financial crises in the US and the European Union. The US has enacted their main regulation, the Credit Rating Reform Act, almost five years after the collapse of Enron in December 2001. During this time and until 2009, the EU relied on a voluntary code of conduct developed by an international standard-setting body, the IOSCO. Against the advices of two European advisory bodies, the EU enacted an own regulation after this code of conduct was finally delegitimized during the financial crisis. Thereby, the EU follows the US path of regulation which focuses on reducing conflicts of interests, enhancing transparency, and increase competition. This chapter describes the genealogy, the dynamics, and the contemporary state of credit rating governance and the linkages between the European and the US regulation.