Credit quality, a controversial view on the importance of rating agencies
Keywords:
Rating agencies, Rating limitationsAbstract
Credit quality, or the capacity to borrow and respond adequately to financial obligations, is only one of the elements of an adequate credit risk management policy. Traditionally, this quality has been evaluated by rating agencies, among the most important ones: Standard & Poor's and Moody's Investors Service.
Empirical evidence shows that credit risk exposures have increased significantly, with a corresponding increase in investors' and regulators' confidence in the work done by rating agencies. However, the evidence also reveals important limitations on the part of such specialized agencies; limitations that, it seems, have not been fully resolved.
This suggests the need for alternative credit risk management tools that are more sophisticated and more in line with the specific conditions and requirements of the markets.
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