Credit Rating Agencies and the added value of information

 

The market for credit rating is an oligopoly with the famous big three dominating the entire industry, which is once again under fire, but some are detecting what could be a departure from the status-quo, paving the way for newcomers to enter the market and moving the business model whereby issuers now pay the CRA's to one whereby investors would do it. In essence, one feels that the motivation behind is to lessen CRA's power grounded in the sheer amount of financial markets participant paying attention to them. From the FT:

"The more people paid attention to these ratings the more it skewed the whole system. They take up an importance that is disproportionate to their value,” says Barbara Ridpath of the International Centre for Financial Regulation and former S&P executive.

The fundamental problem is that regulatory authorities and especially the Basel Committee, built their recommendations and rule for capital adequacy requirements on these very ratings some want now to reform. A U-turn is thus very unlikely in the near future.