Role of Credit Rating Agencies
Role of credit rating agencies The increased importance of credit rating agencies for emerging market finance has brought their work to the attention of observers and under criticism. ... Since then, it has been the sovereign analyst from one of the leading rating agencies, Moody’s Investors Service, Standard and Poor’s or Fitch. Indeed, unlike for industrial countries for which capital market access is usually taken for granted, sovereign ratings play a critical role for developing countries, as their access to capital markets is precarious and variable. The Mexican crisis of 1994-95 brought out that credit rating agencies, like anybody else, were reacting to events rather than anticipating them., an observation reinforced by rating performance before and during the Asian crisis. Rating agencies were accused and they even acknowledged themselves of having been guided by outdated rating models, in particular by ignoring liquidity risks and currency crisis vulnerabilities. One of the striking features of the Asian crisis was the so-called rating crisis, with large rating downgrades of the affected countries – only once the financial crisis had broken.