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Credit Rating Agencies on the Watch List Analysis of European Regulation

by: Garcia Alcubilla, Raquel; Ruiz del Pozo, Javier

Credit Rating Agencies on the Watch List Analysis of European Regulation

by: Garcia Alcubilla, Raquel; Ruiz del Pozo, Javier

ISBN 13:
9780199608867
ISBN 10:
0199608865
Format: Hardcover
Copyright: 05/23/2012
Publisher: 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.

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.

Amazon no longer offers textbook rentals. We do!

Credit Rating Agencies on the Watch List Analysis of European Regulation

Credit Rating Agencies on the Watch List Analysis of European Regulation

9780199608867

0199608865

Summary

Table of Contents

Supplemental Materials

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