The effect of increased competition on the quality of credit ratings De toegevoegde waarde van credit rating agencies bij de berekening van minimum kapitaalvereisten
Academiejaar 2012-2013
Co-promotor: Prof.Dr. Veerle Colaert
Promotor: Prof. Dr. Paolo Casini
Optie financieel recht en economie
MASTER IN DE ECONOMIE, HET RECHT EN DE BEDRIJFSKUNDE
Masterproef aangeboden tot het behalen van de graad
Anne Goor
FACULTEIT ECONOMIE EN BEDRIJFSWETENSCHAPPEN FACULTEIT RECHTSGELEERDHEID
S0203622
Summary
This master thesis is a critical analysis of the functioning of credit rating agencies
and the quality of their credit ratings. We start with a short introduction about the
background and the evolution in the regulation of those agencies. Further the
paper gives more insights in the advantages and disadvantages which are related
to credit raters. The emergence of an oligopolistic rating market and the reasons
for this existence are discussed afterwards and highlight the importance of our
research question, which is whether the quality of credit ratings would increase in
a situation with more competition. According to the reputational capital view,
credit raters publish truthful ratings in order to receive a good reputation and
hence to attract more clients. We argue that this view fails to explain market
behavior in situations of increased competition because in that case the value of a
good reputation declines. By means of an economical model we do research after
the effect of the entrance of a third rating agency, named Fitch. We end our thesis
with an introduction to some alternative models which could serve as a solution to
the conflicts of interest related to credit rating agencies.
ACKNOWLEDGEMENTS| III
Acknowledgements
This way we would like to thank a few people who helped us with the
accomplishment of our master thesis.
First of all we would like to thank our promotors professor Paolo Casini and
professor Veerle Colaert who stimulated us in the subject and helped us find the
right direction for our research question. By encouraging us to work out a plan
and to do some beginning research in the second semester of the previous year,
the workload in the second year became less heavy and more achievable.
We would also like to thank Werner Thiels and Lies Gevaert working at Record
bank and Belfius respectively for the time they spend introducing the subject to
us.
Professor De Croux deserves our extra attention for guiding us through Eviews
and helping us setting up a regression model using panel data.
A lot of credit goes out to Gianni Pauwels, who spend an incredible
amount of time helping us retrieve the data. This enabled us to do the
regression tests with credit ratings, which are hard to retrieve.
Last but not least, we would like to thank everybody in our close
environment. Our parents and sister, who motivated us in the difficult moments.
And of course our friends who were there with some pep talk after a disappointing
day
CONTENTS| IV
Contents
Acknowledgements ......................................................................................................... iii
Contents ............................................................................................................................ iv
List of abbreviations ........................................................................................................ iv
Introduction ....................................................................................................................... 6
1 Literature review ..................................................................................................... 9
1.1 History of credit rating agencies ..................................................................... 9
1.1.1 concept ................................................................................................. 9
1.1.2 Evolution of the regulation on CRA's.................................................. 10
1.2 The functioning of credit rating agencies ...................................................... 12
1.2.1 Information asymmetry problem ......................................................... 14
1.2.2 Coordination function ......................................................................... 15
1.2.3 Advantages & Disadvantages of the use of CRA's ............................ 16
1.3 Oligopolistic market ...................................................................................... 18
1.3.1 Entrance barrier .................................................................................. 19
1.3.2 Entrance to ratings markets ............................................................... 20
2 EMPERICAL STUDY .............................................................................................. 25
2.1 Model setup .................................................................................................. 25
2.2 Data .............................................................................................................. 28
2.3 Results .......................................................................................................... 30
2.3.1 Test 1: Regression with firm credit ratings ......................................... 30
2.3.2 Test 2: Correlation between ratings and bond yields ......................... 35
2.3.3 Test 3: Predicting default.................................................................... 37
2.3.4 Interpretation of the results................................................................. 41
2.4 Alternative interpretation ............................................................................... 42
3 ALTERNATIVE MODELS ...................................................................................... 44
3.1 Investor pays model ..................................................................................... 44
3.2 Government pays model .............................................................................. 46
3.3 Alternatives ................................................................................................... 46
4 Conclusion ............................................................................................................ 49
Bibliography .................................................................................................................... 51
Attachments .................................................................................................................... 58
LIST OF ABBREVIATIONS| IV
List of abbreviations
SEC = Securities and Exchange Commission
NRSRO = Nationally Recognized Statistical Ratings Organizations
CRA = Credit Rating Agency
IOSCO = International Organization of Securities Commissions
CRD = Capital Requirements Directive
BIS = Bank for International Settlements
S&P = Standard & Poor’s
CESR = Committee of European Securities Regulators
ESMA = Europese Autoriteit voor Effecten en Markten
BW = Burgerlijk Wetboek
NAICS = North American Industry Classification System
MSCI = Morgan Stanley Capital International
FISD = Fixed Income Securities Database
INTRODUCTION | 6
Introduction
In our master thesis we focused on the role external credit rating agencies play in
the global financial system and the effect on those credit ratings when there is an
increase of competition. A credit rating is defined as “an opinion regarding the
creditworthiness of an entity, a debt or financial obligation, debt security,
preferred share or other financial instrument, or of an issuer of such a debt or
financial obligation, debt security, preferred share or other financial instrument,
issued using an established and defined ranking system of rating categories”
(Regulation 1060/2009)1. A credit raters’ main function is to produce valuable
information about the creditworthiness of a corporation or a financial instrument
and make this available to the public. Those credit rating agencies play a crucial
role in the decision-making process of investors, most of them blindly make their
decision based on a published credit rating. On the other hand are credit ratings
an important factor in the regulation of financial institutions by determining the
minimum capital requirement. When banks supply financial services and provide
clients with the opportunity to invest their money with them, a maturity
transformation will occur in which the bank will have to turn short term
investments into long term loans. There is a potential problem when such credit
takers are insufficient liquid to fulfill the retrievals of those loans, which will
cause financial institutions to be unable to satisfy the retrievals of their creditors.
This may lead to a domino effect which will make the financial system collapse.
Therefore, banks are required to hold a minimal amount of capital which
functions as a buffer for unexpected retrievals. To accomplish this, credit ratings
are given per financial transaction and are a reflection of the creditability of the
investments.
The process of providing ratings comes with some issues, partly due to the
oligopolistic market structure of the rating industry. The three main credit rating
agencies, which are recognized by the SEC and make together 90% of the whole
rating market, are Standard & Poor’s, Moody’s and Fitch. This oligopoly position
1 Article 3(1) (a) Regulation (EC) 1060/2009 of the European Parliament and of the Council of
credit rating agencies
INTRODUCTION | 7
can be the cause of negative effects. When a rating agency produces ratings, it are
the issuers who pay for those services and who prefer favorable ratings. The
investors, on the other hand, are the ones who rely on those ratings for free and
who prefer accurate ratings. Because an issuer depends on the services of these
agencies for their ratings, those agencies might take advantage of this position.
The huge increase in power and collective dependency of the rating agencies have
contributed a lot to the weakening of the financial system and potentially to the
financial crisis. The main reasons for this must be found at the level of the
regulation which is enforced on the credit raters.
In 1988 the First Basel accord came into action. These are international standards
which main goal is to assure the stability of the financial system. The Basel-
committee mainly contains standards and guidelines which must be followed by
member states but there still exists a lack of formal entitlements. This has
generated the question whether the system has a potential for improvement and
how this can be done. We investigate whether it is the big dependency which must
be avoided by creating more competition, or whether it is better to look for
alternative solutions.
The main goal of our research exists in determining whether increased
competition can offer a solution for the perverse effects which come with the use
of credit rating agencies or whether it is better to use alternative models like ‘the
investor pays model’ , ‘government pays model’ or other models. In a system with
more competition, the opportunity is offered for the market to be self regulating in
a way perverse effects can be avoided. This brings us to our research question,
which is: ‘What is the effect of increased competition on the quality of credit
ratings?’.
In part one of our thesis, we critically review the debate on credit rating agencies,
with special attention for the particular form of the rating market which leads to
an oligopoly position for the three major credit rating agencies. Part two contains
an empirical study in which we do research after the effect of increased
competition on the quality of credit ratings by setting up three different tests and
by analyzing the outcomes. Thereafter, part three focuses on alternative models
INTRODUCTION | 8
and their potential to increase the quality of credit ratings. We end our master
thesis with an overall conclusion.
LITERATURE REVIEW| 9
1 Literature review
1.1 History of credit rating agencies
1.1.1 concept
The market for credit ratings was born in 1909 with the attendance of the first
credit rating agency, named Moody’s (Richard, 2002). It was in the year 1900 that
John Moody established his former company ‘John Moody & Company’ and
published manuals which enabled to analyze the credibility of financial
instruments (Partnoy, 1999). It was until 1909 that John Moody decided to enlarge
its trading activities and to make itself able to judge the credibility of an
instrument. The market for credit ratings has increased a lot during the following
years and has opened itself for the entrance of competing credit rating agencies as
Standard & Poor’s and Fitch.
The European directive describes CRA’s as follows: “Credit rating agencies
publish advice about the creditability of a certain issuer or the quality of a certain
financial instrument at a certain date. These advices on their own do not form
recommendations within the meaning of this directive. Rating agencies must take
into account intern behavioral guidelines and procedures to make sure that the
published ratings are a correct reflection and that they publish potential interests
or conflicts of interests which are related to the financial instruments or the issuers
who are the subject of the ratings" (Regulation 2003/125/EG). Hence, credit rating
agencies make it possible to get rid of the information asymmetry, which exists
between the investor and the issuer of an investment and which is discussed
further in the paper.
Because of the importance of credit ratings in the financial markets, the regulation
of these ratings is crucial. In the past, confidence was given to the fact that credit
rating agencies put much weight to the value of a good reputation and that
building such a reputation would cause the perverse incentives to be avoided.
This theory is also called the reputational capital view (Richard, 2002). The credit
LITERATURE REVIEW| 10
rater knows that he depends on the orders of its clients for his future income and
hence that he must create confidence to maintain a reputation of reliability. This
made the reputational capital theory an excellent system for self regulation in the
rating market and seemed to work until the arrival of the financial crisis (Hunt,
2009). Credit rating agencies and the sometimes biased credit ratings played a
major role in the financial crisis and created the need for more regulation
concerning credit rating agencies.
1.1.2 Evolution of the regulation on CRA's
S&P, Moody’s and Fitch published in the beginning of the nineteenth century
bond ratings. These were the first publicly disclosed ratings on the market and
were soon sold to investors (Partnoy, 1999). At that time it was still an investor-
pays model in which it was the investor who paid the credit rater for the rating.
The financial world began to trust more and more on those credit raters (White,
2009). In 1936 the bank regulators drew up a decree whereby it was prohibited for
banks to invest in ‘speculative investment securities’. These investments are rated
BB+ or lower (according to S&P and Fitch) or Ba1 or lower (according to
Moody’s).
This way the investment behavior and hence decisions of banks were dependent
on the opinion of the three big rating agencies, providing S&P, Moody’s and Fitch
an oligopoly power.
The United States Securities and Exchange Commission introduced in 1975 the
new American concept ‘Nationally Recognized Statistical Rating Organizations
(NRSRO)’. 2The three biggest raters were immediately classified under this
statute. The purpose of the SEC was not to let banks keep the same amount of
reserve, but to make the amount dependent on the risk of the investment. This risk
2 U.S. Securities and Exchange Commission, "Report on the Role and Function of Credit Rating
Agencies in the Operation of the Securities Markets, As Required by Section 702(b) of the
Sarbanes-Oxley Act of 2002", January 2003, 5-15. See also sec3(62) of the "CREDIT RATING
AGENCY REFORM ACT OF 2006" for a definition of NRSRO
LITERATURE REVIEW| 11
was determined by the level of the credit rating, which in turn was determined by
a credit rating agency.
Only ratings coming from NRSRO’s could be used to calculate the capital
requirements, whereby the oligopoly position of S&P, Moody’s and Fitch was
only intensified. By implementing the NRSRO-statute the entrance to the rating
market is being hindered even more. Furthermore, it is very difficult for an
entrant to build up so much information, reputation and connections as the three
big incumbents have already done in a period of 100 years. Currently there are 10
rating agencies that enjoy the NRSRO statute (Hunt, 2009). However, the
competition in the market is quickly tempered if we know that S&P, Fitch and
Moody’s together have a market share of more than 90%.3
In 2004, the IOSCO (International Organization of Securities Commissions)
already implemented some kind of guidelines the CRAs must stick to when
giving a rating, named the IOSCO code. Unlike the Rating Agency Reform
act, the ‘code of conduct fundamentals for credit rating agencies’ is also
applicable outside America. As described by article 4.1, “comply or explain”
is the guiding principle which states that rating bureaus have to publish their
code of conduct and indicate how the IOSCO-principles are implemented in
their own code (Sommer, 1996). When they do not implement the IOSCO
fundamentals, they have to explain how and why their code deviates from the
IOSCO-principles.4 The code can be divided in four important parts. First the
rating agencies must guarantee the quality and integrity of the rating process.
Next, CRAs must take measures to assure the independency and to avoid
conflicts of interest. The third part requires transparency and clarity of the
ratings and in the final part rating bureaus are required to work out procedures
which guarantee the confidentiality in handling dossiers.
3 U.S. Securities and Exchange Commission, "Speech by SEC Commissioner: Remarks at the
Commission Open Meeting, by Commissioner Kathleen L. Casey", 3 December 2008,
http://www.sec.gov/news/speech/2008/spch120308klc.htm. 4 The Technical Committee of the International Organization of Securities Commissions, Code of
Conduct Fundamentals for Credit Rating Agencies, December 2004, 11p.
LITERATURE REVIEW| 12
Because of the big responsibility of credit rating agencies when giving credit
ratings, it is important that strict supervision also exists at European level. The
European commission carefully analyses the way the rating agencies function. On
16 September 2009, a first European directive came into action, which aimed at
assuring credit ratings used in the community to be independent, objective and of
adequate quality (Regulation 1060/2009). An amendment to the CRA Directive
entered into force, on 1 June 2011, giving exclusive supervisory power to the
European Securities and Markets Authority (Regulation 513/2011). Because a lot
of flaws and disadvantages which are caused by rating agencies are not dealt with
in the existing European regulation concerning credit rating agencies, the
European Parliament is working on a proposal to enhance the regulatory
framework.5 This has generated the desire of an increase in entrance possibilities,
which will result in issuers no longer being dependent on only three credit rating
agencies, named Moody’s, Standard & Poor’s and Fitch. Such an increase in
competition could have a positive effect on the existence of potential conflicting
interests. The economical effects which are generated by an increase in
competition is analyzed in our economical model, further in the paper.
1.2 The functioning of credit rating agencies
Credit rating agencies play a crucial role in the functioning of the financial
markets as they determine the credibility of an investment and the risk for default.
On the other hand, credit raters offer monitoring services by which they are able
to force issuers to take corrective measures to avoid a downgrade (De Haan &
Amtenbrink, 2011). This is called the ‘watch’ procedure and will be explained in
more detail. The three main credit rating agencies which are usually very
comparable in structure and method are all making use of the issuer pays model
(Deryn, 2009). Credit ratings can be defined on a scale of numbers and letters and
differ according to the credit rater who published them. Within those rating
5 Proposal for a regulation of the European parliament and of the council amending regulation
(EC) N° 1060/2009 on credit rating agencies
LITERATURE REVIEW| 13
categories, modifiers are used to make a further diversification. As you can see
from the table, both Fitch and S&P make use of pluses and minuses, where
Moody’s makes use of numbers.
Moody’s S&P, Fitch Numerical value assigned *
6
Investment grade
AAA AAA 28
Aa AA 24,25,26
A A 21,22,23
Baa BBB 18,19,20
Ba BB 15,16,17
B B 12,13,14
Caa CCC 9,10,11
Ca CC 7
C C 4
default D D 2
A credit rater is an intermediary between the issuing entity and the investor by
making valuable information available to the public and reducing the information
asymmetry this way (Tang, 2008). On the other hand, a credit rating agency is
able to change an existing credit rating when an event occurs which has a
significant effect on a given rating. Most of the time, the intention to change a
rating will be notified by a credit rater via ‘outlooks’ and ‘watchlists’ (De Haan &
Amtenbrink, 2011). A rating outlook is an indication of the opinion of a credit
rater about the direction a rating is likely to move over a medium period, more
specific a one- or two- year period (Hamilton, 2004). A watchlist, on the other
hand focuses more on the short time. The introduction of an outlook or a watchlist
makes it possible for the credit rater to coordinate the behavior of both the
investor and the issuer and to engage in an implicit contract with the rated firm
(Leenaars, 2003). Below, both the information-transformation function and the
coordination function are discussed in more detail.
6 *Multiple numerical values for a single rating level represents ratings with a +
qualifier, no qualifier and a – qualifier respectively for ratings from S&P and
Fitch. For ratings from Moody’s, the numerical values represent ratings with
numerical modifiers 1, 2 and 3 respectively.
LITERATURE REVIEW| 14
1.2.1 Information asymmetry problem
The economic function of a credit rater is defined as getting rid of existing
information asymmetries by analyzing inside information and making this public
in the outside-world, also known as the information-transformation function
(Boot, 2008). According to this view, the use of external credit raters does have
added value in the calculation process of credit risk and hence is able to reduce the
existing information asymmetry. This view can also be understood in the
following citation of Moody’s: “Generally, institutional borrowers know more
about their companies than do their lenders. Moody’s helps to reduce this
asymmetry of information. Accordingly, credit ratings, in aggregate, lower the
costs of borrowing and lending and increase overall market efficiency for both
issuers and investors” (Boot, 2006, P.3).
The asymmetry problem can best be understood as a situation in which the issuer
has information about the value of the firm which the investor doesn’t have and
which the issuer can not communicate in a credible way to the market
(Bruyninckx, 2008). In those scenarios, a credit rating agency can function as an
intermediary between the issuer and the market by analyzing the issuer and by
reporting the gained information in an objective way to the public.
Information- asymmetry does not only exist at the level of issuer – investor, but
also between the rated entity and the credit rater. This problem can be seen as an
agent-principal relation between on the one side the agent or CRA and on the
other side the issuer or the principal (Boot, 2006).The credit rater calculates a
rating in request of his principal, the issuer. Doing so, the agent has to take into
account the interests of his principal and respect those, but very often his
assignment will be inspired by its own conflicting interests (Tang 2008).Between
both parties, information asymmetry could occur; this means that both of them
own information which the other party doesn’t have (Donkers, 2010).This
reciprocal information asymmetry will cause both §1 ex ante as §2 ex post effects,
which will be explained further in this paper.
LITERATURE REVIEW| 15
§1 Ex ante effects:
Before contracting with the credit rater, the issuer will have at his disposal some
information which he thinks is valuable and which he will only release to the
credit rater when he is convinced that he can gain an economical benefit this way
(Jorion, 2005).The credit rater in his turn will have information about the methods
and procedures to come to an optimal rating, something he will use tactically
during the negotiations with the issuer to optimize its income.
Here the risk exists that the credit rater will only aim at generating loyalty with
the potential client, the issuer, and less at creating a qualitative good rating
(bruyninckx, 2008).These ex ante effects are a form of adverse selection, which
attracts bad risks because the one who keeps the most information hidden, will
often have the greatest interest in negotiating a rating agreement.
§2 Ex post effects:
Because of the information benefit, the risk exists that the credit rater will change
its attitude towards the issuer once the agreement is formed and will not behave in
a way that was agreed or which may be expected from him (White, 2010;
Donkers, 2010). Because the credit rater has the possibility to keep his rating
methods, the information and the processes to determine the rating secret to the
public, he has a certain amount of freedom to make his decisions. He can give a
personal influence to the rating, which makes the rating more positive than in
reality, to please the issuer but which also leads to the rating losing its objectivity.
Because the credit rater is dependent on the assignments of the issuer, this danger
will be very present. This is an illustration of the concept ‘moral hazard’, which
enters because the issuer can not observe every activity of the credit rater and so
will be dependent on the reliability of this last one (Leenaars, 2003).
1.2.2 Coordination function
Investors depend for their decision whether they should or should not invest
mainly on a given rating. On the other hand is the credit rater able to put pressure
on a firm by threatening to change a given credit rating. This system of
interactions can be described as the coordination function of credit ratings (Boot,
LITERATURE REVIEW| 16
2006). A credit rating agency is capable of blocking an entire investment decision
of a potential investor by publishing a non-investment grade rating. Those
blocking effects can be found in simple investment restrictions or in specific
regulation, both of them influencing the behavior of market participants and their
investment decisions (Fried & Howitt, 1980).The major problem is situated in the
fact that firms have information which the investors do not have, which leads to a
lack of faith in the market. On the other side will the existence of an implicit
contract between the credit rater and the rated firm cause a potential danger for
pressure on the rated firm (Banier & Hirsch, 2008). In case an event occurs which
could have a significant effect on the existing ratings, the credit rater can rely on
the implicit contract by demanding from the rated firm to take certain correcting
measures in order to retain the current credit rating. This procedure is also known
as the ‘credit watch’ procedure (Frost, 2006).
This system of interactions will be maintained because the rated firms know the
importance the investors attach to a published rating and hence they have to try to
keep the credit raters satisfied in order to receive a wanted rating. The
consequences of a change in an existing rating can be of significant importance
for the financing of a rated firm, which causes the firms to respect the credit rater
and the implicit contract.
1.2.3 Advantages & Disadvantages of the use of CRA's
There are several advantages which can be ascribed to credit rating agencies
(Partnoy, 1999). First of all, it is important for investors to gain information about
the risk they are taking when making a certain investment, in order to receive an
adequate compensation for this amount of risk. Compensation is given in the form
of interest, whereby interest rates are related to the level of risk of an investment
instrument (Brigo & Mercurio, 2006).This means that good firms, which have low
levels of risk, are able to receive higher credit ratings and hence might borrow
money at more favorable interest rates. Those firms, which are already performing
well, are able to expand their business even faster and hence will stimulate the
overall economy. By determining the appropriate level of compensation, credit
LITERATURE REVIEW| 17
rating agencies enable investors to make a well balanced trade-off between risk
and interest rate by providing a risk-return ratio. Since not all investors are
opposed to risky investments, they are now able to be rewarded in a correct
manner for taking on such high levels of risk. Finally it is important to notice that
credit raters can function as a warning for underperforming firms which have low
levels of credithwothiness because they hold on too much debt or because they are
not able to pay back in time (White, 2010).
On the other hand, a lot of disadvantages and flaws are linked to the use of credit
rating agencies. The methods those rating agencies use to calculate those ratings
became more and more subject to discussion and critics, because they did not
always generate optimal results (Cantor & Packer, 1994). By this, a credit rating
agency will be confronted with all kinds of unwanted side effects of the rating
process which cause the ratings to lose their objectivity (Boot, 2006). A credit
rating agency who functions based on the issuer pays model, generates ratings
when they are asked for by the issuer, most of the time this is the firm in which
people can invest. It is the issuer who pays for the rating and who creates a source
of income for the credit rater (Kudva, 2010). This causes the credit rater to lose its
independency and will lead to ratings which are more positive for the issuer, but
which is not always a true reflection of the reality.
Another potential side effect can be found in the fact that credit raters have a
limited liability. They can not be held responsible for false ratings they have
published. This generates a certain amount of quasi-immunity (Bruyninckx,
2008). Knowing that only a limited number of recognized rating agencies are
present in the market, named Moody’s, Standard & Poor’s and Fitch, the market
mechanism will not reach a complete functioning. The quality of the ratings will
suffer from this because the credit rater knows that the issuer only has limited
possibilities to switch to another credit rater.
The goal is to find models which aim at increased transparency between the
investor and the investment by informing the investor in a better way. Another
LITERATURE REVIEW| 18
working point is to avoid entrance obstacles which limit competition in a way that
has a negative effect on the quality of the ratings. The potential of increased
competition to improve the quality of the rating is investigated in this paper.
1.3 Oligopolistic market
The credit rating market has been characterized for years as a duopolistic market,
dominated by Standard & Poor’s and Moody’s. In 1990, a third player, named
Fitch, made its entrance by increasing its market share through various
acquisitions. At present, the rating market consists of three major players, which
are together in the possession of a market share of 90% (Smant & Van Der Ent,
1994).This high degree of concentration creates a noncompetitive market in which
only a limited number of players have market power. This leaves the issuers with
a limited possibility to switch to a competitor (Becker & Milbourne, 2011). The
proposed measure resulting from the European proposal n° 2011/0361, indicating
that the issuer must consult two different credit rating agencies in order to become
an objective rating, only worsens the effect of limited competition (proposal
2011/0361). Up until recently, the possibility to entrance in the rating market in
America was disturbed by a regulatory barrier to entry, created by the SEC (The
Securities and Exchange Commission). In 1975 the process for recognizing credit
rating agencies, ‘Nationally Recognized Statistical Rating Organizations’
(NRSRO), came into action.7 This NRSRO statute formed a significant entry
barrier because only NRSRO’s could issue ratings which are officially recognized
by the SEC.
The European regulation undertakes all kinds of measures to increase competition
and the proposal for a new European regulation intends to go even further to
achieve this goal (De Haan & Amtenbrink, 2009). Yet the increase in the number
of players and hence in competition does not guarantee qualitative ratings. The
7 U.S. Securities and Exchange Commission, "Report on the Role and Function of Credit Rating
Agencies in the Operation of the Securities Markets, As Required by Section 702(b) of the
Sarbanes-Oxley Act of 2002", January 2003, 5-15. See also sec3(62) of the "CREDIT RATING
AGENCY REFORM ACT OF 2006" for a definition of NRSRO
LITERATURE REVIEW| 19
assumption of increased quality only holds when there is a factor which causes
high quality raters to benefit and low quality raters to be punished (Hunt, 2009).
1.3.1 Entrance barrier
An entrance barrier is an obstacle which avoids that a credit rater will have
automatically entrance to the rating market. The credit rating market is
characterized by all kinds of entry barriers. Further in this paper, a distinction will
be made between natural (§1) and institutional (§2) entrance barriers.
§1 Natural entrance barriers:
A credit rater is dependent on the issuer for the rating assignment and to generate
an income this way. The prospects that he will attract new clients in the future,
makes that the credit rater will have attention for the way he is seen at the public
(White, 2010). He will profit from building a reliable and credible reputation, to
assure the amount of clients for the future. This reliability demands ratings to be
formed independent from the issuer and to contain a minimum amount of
objective information (Hunt, 2009). Besides these natural barriers, the entrance is
also disturbed by law, by all kinds of rules and institutional restrictions which
make that not every credit rater is a nationally recognized entity. A NRSRO
statute gives a credit rater the exclusive status of recognized credit rating agency
(Partnoy, 2006).
§2 Institutional entrance barriers:
The credit rating industry has been dominated during a long time by two rating
agencies, forming a duopolistic market (Camanho & Deb, 2011). Those two
agencies were Moody’s and Standard & Poors. This was mainly due to the
entrance of the NRSRO “Nationally Recognized Statistical Rating
Organizations”. Since 1975 rating agencies could only be in the possession of
such a certificate when they complied with all the different aspects, and which is
granted by the “Securities and Exchange Commission” (SEC) (Partnoy, 2006).
LITERATURE REVIEW| 20
Because investors prefer credit rating agencies who own such a certificate, this
will have a limiting effect on the entrance of new credit rating agencies, without a
certificate (White, 2008). Paul S. Atkins, 2008, argumented following quote:
“The unintended consequence of the SEC’s approach to credit rating agencies was
to limit competition and information flowing to investors. The legislative history
reflects a genuine concern that the SEC facilitated the creation of – and
perpetuated – an oligopoly in the credit rating business.”8
These entrance barriers gave credit rating agencies a prominent place in the
financial market. The high amount of concentration which gives an oligopoly
power to the three main players, draws our attention to the stability of the credit
rating market and the negative consequences that follow. Therefore we can ask the
question whether a system of self regulation, which is made possible by more
competition on the market, is able to offer a solution.
1.3.2 Entrance to ratings markets
The entrance of the third rating agency, named Fitch, allows us to analyze the
effect of increased competition in the rating market. Where issuers could
previously only ask ratings and services from Standard & Poor’s or Moody’s, now
the possibility is created to switch to a third agency, Fitch. Fitch’s roots go back to
1913, when it was founded by John Knowles Fitch under the name Fitch
Publishing Company (Wolfson & Crawford, 2010). But at that time Fitch was
nothing more than a small player which had no or only a small effect on the
existing oligopoly. It was in 1989 that Fitch became a noticeable player in the
credit rating market, because of the recapitalization of Fitch (Packer & Cantor,
1995). This recapitalization was followed by a merger with IBCA limited in 1997.
From that time on, Fitch continued to grow and became a serious competitor of
the two existing agencies (Becker & Milbourne, 2010).
8 U.S Securities and Exchange Commission, "Speech by SEC commissioner: Remarks to the
institute of international bankers by SEC commissioner Paul S. Atkins", 3 maart 2008,
www.sec.gov/news/speech/2008/spch030308psa.htm
LITERATURE REVIEW| 21
This way the amount of competition increased, which led to all kinds of effects.
Further in this paper we try to analyze these effects and determine how this has
influenced the quality of the ratings. More specific we put up a regression model
to measure the effect of increased competition presented by the entrance of Fitch
on the quality of the ratings published by the incumbent players, Standard &
Poor’s and Moody’s.
The quality of a rating is an important factor in our research, that’s why it is
crucial that this term is clearly defined. Quality is defined as the difference
between the published rating and reality. A qualitative rating has to be
informative, precise and most important; it must be a clear representation of the
truth. Ratings with low quality, most of the time high ratings, will be in favor of
the issuer but will be detrimental for the investor, because the rating is influenced
by preferences and will be subjective because it reflects other things than the
probability of repayment (Huang, Chen, Hsu & Wu, 2004). The income of a
rating agency depends on the fees being paid for the ratings. It is the issuer, most
of the time the company that is rated, that will have to pay for those fees and the
investor can consult these ratings for free (Deryn, 2009). It is advantageous for the
issuer to receive a rating which is as good as possible, while the investor has more
interest in a rating being a correct reflection of the reality. It is up to the credit
rater to balance those two interests and to create a trade-off between current
incomes and reputation.
1.3.2.1 Reputational, market-sharing and disciplining effect
In a credit rating market where the possibilities to enter are limited, the reputation
of the credit rating agencies will be of major importance (Becker & Milbourne,
2011). Therefore the rating agency will try to publish ratings which are very
reliable and which reflect the truth, because this will determine whether the issuer
will or will not ask again for his services in the future (Partnoy, 1999). It is
important that the investor has confidence in the rating, because if not, the issuer
would no longer believe that it is profitable for him to ask for a rating. This could
LITERATURE REVIEW| 22
be defined as follows: “Every time a rating is assigned, the agency’s name,
integrity and credibility are on the line and subject to inspection by the whole
investment community” (Wilson, 1994).
When the possibility to enter is offered and finally competition is allowed, the
importance of reputation will decrease. This because increasing competition will
cause expected future rents for the incumbents to fall (Becker & Milbourne,
2010). This way, competition will lead to ratings that try to favor the issuer by
giving ratings which do no longer reflect reality. A potential effect of increased
competition will exist in the fact that the ratings of the existing rating agencies
will improve (Allen, Carletti & Marquez, 2009). So a rating which was a B-rating
before, might after the entrance of a third player, be transformed into an A-rating.
The main idea, which was also the result of the research by Bar-Isaac and Shapiro
(2010), is that there are greater incentives to provide accurate ratings when
reputation losses are higher, because this way there’s a lot to gain from
informative ratings (Bar-Isaac & Shapiro, 2010). The reputational theory states
that competition can undermine the future rents for the incumbents, but we must
argue whether this is also the case when there is a situation of massive increase of
the credit rating industry, which generates an increase in total rents (Mathis,
Mcandrews & Rochet, 2009). This is why we must conclude that the reputational
theory only makes sense when more competition corresponds to lower future
rents, holding market size constant.
The seminal study of Mathis et al. (2009), shows that reputation by itself is an
insufficient mechanism to discipline the reporting of objective ratings. In a
situation of increased competition, credit rating agencies tend to inflate ratings
and this can only be avoided when a major fraction of the credit rater’s income
stems from other sources than rating financial instruments (Schultz-Larsen &
Hasling Kyed, 2012).
The decreasing importance of reputation can be found in a number of statements
which fall under the theory of ‘market-sharing effect’ (Pragyan, 2012). The
investigation of Klein and Leffer’s (1983) shows that building reputation will be
of big importance when this generates the possibility to create more income in the
future. Because there are more players in the market in a situation of increased
LITERATURE REVIEW| 23
competition, the incomes per player will be limited and so the effect of reputation
will decrease, and because of this effect, the importance of the reputational view
will decrease as well (Becker & Milbourne, 2009). Another consequence is that
rating agencies will, especially when situated in a competitive market with an
elastic demand side which is very price sensitive, opt to decrease their price to
attract more issuers (Hill, 2009). Before the entrance of the third rating agency,
Fitch, credit raters had a kind of oligopoly position, which offered them the
possibility to count high prices. Credit raters tried to maintain this oligopoly
position after the entrance by charging extremely low prices and maintaining this
way a large part of the market share. This is called the disciplining effect (Mathis,
Mcandrews & Rochet, 2009).
As a conclusion we can say that the reputational effect might be weaker in
situations of high competition, which means that the incentives to maintain high
quality ratings declines (Becker & Milbourne, 2011). In our economical model we
provide evidence for this conclusion.
1.3.2.2 Rating shopping
Another effect we must take into account in a situation of increased competition is
rating shopping. This phenomenon describes the situation in which the issuers
look around for the best rating from the different rating agencies and choose only
to publish the best one (Skreta & Veldkamp, 2009). When the barriers to entry are
dismissed and competition is allowed, the issuers can choose between more
parties to rate their products (Sangiorgy, Sokobin & Spatt, 2009). Theoretical
models by Skreta and Veldkamp (2009) show the effect of rating shopping on the
quality of the ratings. Results show that more complex financial products are a
trigger for more rating shopping, which has as consequence that the ratings are
more biased. The effect of rating shopping will be bigger when one rating agency
uses criteria which are more lax than the criteria the competitors use (Adelson,
2006).
Although increased competition worsens the effect of rating shopping, this isn’t as
much the case for corporate securities (Becker & Milbourne, 2010). Because in
LITERATURE REVIEW| 24
test 2 we use ratings of corporate bonds, the problem of rating shopping will be
mainly avoided for that test.
This can be explained because corporate issuers can not choose whether or not to
publish a given rating because Moody’s and Standard&Poor’s have a policy
which states that all taxable corporate bonds publicly issued in the US must be
rated and published. So it doesn’t matter when an issuer doesn’t want to pay for a
rating, the rating will be published anyway. This phenomenon is also called
‘unsolicited ratings’ and describes the situation in which the evaluation of the
creditworthiness of an instrument or an issuer is granted without any involvement
of the issuer (Cohen, 2011). In our research, after the entry of Fitch, some issuers
might ask for the ratings of this credit rating agency, but they do not have the
possibility to eliminate the ratings she already received from the incumbents,
Moody’s and Standard & Poor’s, this way the variable ‘number of ratings issued
by incumbents’ won’t be affected.
However, our sample for the empirical study consists of both bond and firm
ratings, for this reason an alternative interpretation of the results, which includes
the effect of rating shopping, will be added to the empirical study.
EMPERICAL STUDY | 25
2 EMPERICAL STUDY
2.1 Model setup
We wish to examine the potential effect of increased competition on the quality of
the credit ratings by doing three different tests which are mainly based on
previous research of Becker and Milbourne (2011). Increased competition is
determined by the entrance of Fitch, which was in 1913. Our sample ranges from
1996 to 2006, this because Fitch only became a remarkable player since the late
90’s caused by , as already mentioned in this paper, a major recapitalization.
This entrance resulted in a significant increase in the market share of Fitch. This
will be calculated by the fraction of the total number of bond ratings issued by
Fitch in a particular year over the total number of bond ratings issued by Standard
& Poor’s and Moody’s in the same year in a specific industry. To classify the
industries we used the North American Industry Classification System (NAICS),
see table 1 and the Morgan Stanley Capital International World (MSCI World),
see table 2.
In the figures below you can see the graphical evolution of the market shares of
Fitch over our sample period in both industry classification systems, starting in
1996 until 2006.
0
0,1
0,2
0,3
0,4
Fitch's market shares
NAICS
Market shares
EMPERICAL STUDY | 26
The graphs represent the mean of the market shares over the different industries
per year and are a reflection of the level of competition in the rating market. In
2000 and 2005 we notice a peak, due to the acquisition of BankWatch and the
acquisition of Algorithmics respectively.
Table 1 shows the market presence of Fitch over the different industries according
to the NAICS, which indicates that by the end of our sample period, Fitch was
especially present in Real Estate, Rental And Leasing with an average market
share of 0,42 (NAICS 53) followed by Retail Trade with an average market share
of 0,39 (NAICS 45). Also Public Administration, Management of Companies and
Enterprises and Utilities are characterized by a prominent presence of Fitch. In
table 2, you can see the market presence of Fitch over the different industries
according to the MSCI World index. This table shows that by the end of our
sample period, Fitch was especially present in Finance with an average market
share of 0,38, followed by the Communication industry with an average market
share of 0,29.
We analyze how the quality of ratings corresponds to the increased competition,
caused by the entrance of Fitch. Quality is defined as the difference between the
rating, which was determined by the rating agency, and the true credibility of the
financial instrument or entity. It is important to notice that the rating quality is not
always objective. This means that the failure of a firm which received a high
rating, is not automatically due to a false rating/low quality, but is influenced by a
lot of other external factors.
0
0,05
0,1
0,15
0,2
0,25
0,3
Fitch's marketshare
MSCI World
Marketshare
EMPERICAL STUDY | 27
To measure our research question, we set up two regression models using panel
data and one correlation model.
In our first test, we analyze the regression between the firm ratings and the
evolution of the market shares, in which credit rating is the dependent variable.
One possible outcome is that when there is more competition, the level of the
ratings will be higher (e.g. AA), meaning that the quality decreased. This can be
explained because of the decrease in reputational effect, which causes the rating
agencies to favor the issuer by giving him a high rating. In that case the high
rating is not due to an increase in creditworthiness of the entity but solely to
enhanced competition. Another possible outcome is that competition does not
decrease the quality of the ratings. In that event we can not assume that there is a
decrease in the reputational effect and that even with increased competition, credit
ratings are reliable. We expect to come to an outcome which confirms our idea
that a general increase in the level of the ratings is a direct effect of competition,
meaning that competition leads to credit raters favoring the issuer instead of
giving credible ratings.
The problem with these increases in ratings is that decrees can be circumvented
by this. In 1933 a decree came into action which contained a prohibition for banks
to invest in speculative bonds, which do not reach to ‘investment grade’ level.
These investments are rated BB+ or lower (according to S&P and Fitch) or Ba1 or
lower (according to Moody’s) .
When the level of a rating increases only because of competition, the
creditworthiness of the instrument will stay the same, and this way banks are
allowed to invest in an instrument in which they would not be allowed to invest
without competition.
In our second test we analyze whether a rating is qualitative. Quality is measured
by analyzing the correlation between the bond yield and the bond rating. The
intuition behind this measure is that a bond rating, when qualitative, must reflect
nothing but the prediction of a future default. A bond rating that has a high
correlation with the bond yield is a rating which transforms information in a
correct manner and can be seen as a qualitative rating.
EMPERICAL STUDY | 28
We expect the correlation to be lower when there is more competition in the rating
market, this because of the decrease in quality as explained above.
Finally we test the predictive power of the default of ratings when the level of
competition changes. This will be done by comparing situations of default with
the rating that was given one year before this default event. Since ratings are
supposed to predict the likelihood of default, we can measure whether a rating
becomes less credible when there is more competition and will lose its
predictability. In our research, situations of default will be defined as a rating with
level ‘D’.
2.2 Data
For the firm ratings in our sample we made use of the Compustat North America
Database. There we found the monthly evolution of the ratings for the different
firms from 1996 to 2006, rated by Standard & Poor’s. To make the test more
relevant, we duplicated the test with another industry classification system,
namely MSCI World, which gives us the evolution of the ratings from Standard &
Poor’s, Moody’s and Fitch per year. For the analysis we transformed the rating
scale into a numerical variable, in the table below you can find an overview of the
transformation process.
EMPERICAL STUDY | 29
Moody’s S&P, Fitch Numerical value assigned *
9
Investment grade
AAA AAA 28
Aa AA 24,25,26
A A 21,22,23
Baa BBB 18,19,20
Ba BB 15,16,17
B B 12,13,14
Caa CCC 9,10,11
Ca CC 7
C C 4
default D D 2
For the duplication of test 1 we took the average of the three ratings. For the
market shares, we used the total number of bond ratings issued by S&P, Moody’s
and Fitch, which we drew from the Mergent Fixed Income Securities Database
(FISD). As previously mentioned, we divided the market share of Fitch by the
market share of the three credit raters over the different industries. The industries
refer to the 2-digit NAICS and for these codes we relied on the Oriana Database.
Via compustat we could only generate ratings from firms of three industries,
namely Utilities, Manufacturing-Wood, Paper, Printing and Manufacturing-
Metals, Machinery, Computers. This will not bias our results because we still
have a substantial number of observations. The remaining sample consists of
13350 observations.
We retrieved bond yields from Bloomberg to do the correlation analysis between
yield spreads and ratings. Yield spreads are defined as the difference between
yield to maturity of a bond and the yield to closet maturity treasury bond. Because
the total number of companies according to the NAICS was 24416, we only used
firms from the industries Accomodation, Real Estate and Construction. Because
every firm issues a number of different bonds, we only took one random bond
transaction per firm, assuring that the different bonds we use have the same
maturity.
9 *Multiple numerical values for a single rating level represents ratings with a +
qualifier, no qualifier and a – qualifier respectively for ratings from S&P and
Fitch. For ratings from Moody’s, the numerical values represent ratings with
numerical modifiers 1, 2 and 3 respectively.
EMPERICAL STUDY | 30
For our third test we used firm ratings and default events (a ‘D’ rating) and drew
those from the Compustat Database. As mentioned before, a future default event
is defined as having a ‘D’ rating within the next year.
2.3 Results
In this chapter we discuss the results of our test which aim at discovering the
effect of increased competition in the rating market on the quality of the ratings.
2.3.1 Test 1: Regression with firm credit ratings
In the first test, we regress firm credit ratings on Fitch’s market share. We start
with a regression where we use the level of the ratings as a dependent and market
share as independent variable.
Regression model:
RATt= α + β1MARt + ε
Dependent variable:
RAT = rating level issued by the incumbents in year t
Independent variable:
MARt = market share in period t (with t ranking from 1996 to 2006)
In the table below you can see the results for the dataset with industries from
NAICS.
variable Coefficient t-statistic probability R Squared
C 20,79 203,93 0,000 0,004
Market share -2,27 -7,32 0,000
When we do not include control variables, we see that the coefficient on Fitch’s
market share is negative, with a probability factor of 0,000, which indicates that
market share is a significant variable in the model. The negative coefficient
EMPERICAL STUDY | 31
suggests that more competition pushes ratings towards the lower end of the rating
levels (for example toward C). This pattern is also presented in the graph which
plots the frequency of each level of ratings for high and low levels of competition.
We define low levels of competition as the period before 2000 and high levels of
competition as the period from 2000 to 2006.
From this graph we can see that higher level ratings are less common under high
competition and lower level ratings are more common under high competition. As
you can see for example the frequency of ratings of level A is 13,7% under low
competition and only 9,7% under high competition. When we look at the R^2 of
our model, we notice that this is very low (0,004). This low R^2 indicates that the
proportion of variation in the dependent variable which is explained by the
independent variable is redundant.
The estimated coefficient in this model could be unreliable because we did not
add controls. We now turn to a model in which we control for year- and firm fixed
effects.
Variable Coefficient t-statistic probability R Squared
C 18,97 85,94 0,000 0,64
Market share 3,51 5,03 0,000
This pushes up the R^2 to 0,641 and makes the coefficient on market share
positive (3,51) and significant.
0
5
10
15
20
25
30
35
AA
A
AA
+
AA
AA
-
A+
A
A-
BB
B+
BB
B
BB
B-
BB
+
BB
BB
-
B+
B
B-
CC
C+
CC
C
CC
C-
CC
C
D
before 2000
From 2000-2006
EMPERICAL STUDY | 32
When we control for the fixed effects of the lagged ratings, we see that the R^2
even goes up to 0,97, meaning that the proportion of variation which is explained
by the independent variable has increased to 97 percent. The coefficient of market
share is positive (0,05) and significant.
regression model:
RATt = α + β1MARt + RATt-1 + ε
Dependent variable:
RAT = rating level issued by the incumbents in year t
Independent variable:
MARt = market share in period t (with t ranking from 1996 to 2006)
RATt-1 = lagged effects of ratings
Variable Coefficient t-statistic Probability R squared
C 0,28 7,46 0,000 0,97
Marketshare 0,05 3,88 0,000
Rating(-1) 0,98 620,45 0,000
This positive correlation between Fitch’s market share and the level of credit
ratings issued by Standard & Poor’s suggests that with more competition, the
levels of credit ratings increases, as we assumed before.
To make sure that these results were not due to our sample choice, we duplicated
the test with an industry classification system from another database, namely
MSCI World. These results show that the coefficient on market share is slightly
positive (0,38) and significant when we do not control for fixed effects.
Variable Coefficient t-statistic Probability R Squared
C 20,61 785,71 0,000 0,0004
Market share 0,38 3,94 0,0001
This weak effect can be illustrated by the graph which shows small differences
between the levels of ratings with high and low competition.
EMPERICAL STUDY | 33
As you can see for example all the A rating levels are comparable under high and
low competition. When we have a look at R^2, which is again very low (0,0004),
we can conclude that the predictive power of the model without controlling for
fixed effects is again redundant.
When we do control for firm- and year fixed effects, to make the model more
reliable, we see that this pushes up the R^2 to 0,73 and hence increases the
predictive power of the model. The coefficient of Fitch’s market share remains
positive (0,34) and significant.
When we control for fixed effects of lagged ratings, we see that this pushes up R
squared to 0,98 and makes the coefficient on the market share positive and
significant (0,23). From which we can again conclude that in situations of
increased competition, the levels of credit ratings are significant higher.
0
5
10
15
20
25
AA
A
AA
AA
+
AA
- A
A+
A-
BB
B
BB
B+
BB
B-
BB
BB
+
BB
- B
B+
B-
CC
C
CC
C+
CC
C-
CC
C
D
Before 2000
from 2000-2006
Variable Coefficient t-statistic Probability R Squared
C 20,75 1312,27 0,000 0,73
Market share 0,34 -5,49 0,000
EMPERICAL STUDY | 34
Variable Coefficient t-statistic Probability R squared
C 0,18 12,06 0,000 0,98
Market share 0,23 3,51 0,000
Rating (-1) 0,99 1405,69 0,000
These results diminish the value of the use of credit ratings in the financial system
because the increase in the level of these ratings are not a representation of the
change in creditworthiness of the firms and do only reflect the increase in
competition.
Drawbacks
We must draw attention to some issues related to our sample. First, there might be
some selection in our sample of market shares of Fitch. This lack of randomness
is due to the fact that Fitch will be more likely to enter into industries in which
firms receive low ratings and hence are more likely to ask for a third opinion. The
higher market shares in those industries can be explained by the assumption that it
was easier for Fitch to grow its presence in booming sectors, where credit demand
was high.
Second, our findings could be biased because of the effect of firm heterogeneity.
This could be avoided by including accounting-based firm controls like firm size,
profitability, indebtedness, etc. However, this was almost impossible for our
research because our data originates from different databases, which requires
transforming any extra control variable manually to link them to the correct time
period.
The test could be enhanced by analyzing whether the effect of competition is felt
stronger for firms with higher levels of indebtedness and hence are more
concerned about their ratings. This could be done by including several levels of
leverage in the model and measure how they interact with Fitch’s market share.
For the same reason as mentioned before, this was impossible with the data we
had available.
EMPERICAL STUDY | 35
2.3.2 Test 2: Correlation between ratings and bond yields
In the second test we examine the level of information contained in a credit rating
under different levels of competition. This is done by measuring the correlation
between ratings and bond yield spreads. In this approach we assume that ratings
are able to predict the value of bonds, whereby we use the evolution of bond
yields to assess the informativeness of ratings. The bond yields are calculated
using bonds from MSCI World industry firms whereby we only included bonds
with maturity of ten years. We chose to only use bonds with the same maturity to
increase the comparability.
The correlation between bond yield spreads and ratings will be lower when the
ratings are less qualitative and less informative. Because in that case, ratings will
predict other things than the chance for repayment. Yield spread is defined as the
difference between the yield for the government bond with closest maturity and
the yield to maturity of the bonds. For the government bond data with maturity of
ten years, we made use of the Federal Reserve’s H15 report. The result of the
correlation test between ratings and yield spreads is shown in the table below.
rating yield
rating 1.0000 -0.0897
yield -0.0897 1.0000
From the table we can see that ratings and yield spreads are negatively correlated,
indicating that when rating levels increase, yield spreads decrease.
We now do a regression to measure the interaction between the credit ratings and
Fitch’s market share to include the effect of competition.
Regression model:
RATt= α + β1MARt + ε
Dependent variable:
RAT = rating level issued by the incumbents in year t
EMPERICAL STUDY | 36
Independent variable:
MARt = market share in period t (with t ranking from 1996 to 2006)
As you can see from the table below, the coefficient on credit ratings is positive
(0,38) and significant, indicating that credit ratings increase with higher levels of
competition. As a consequence we can derive that when there is more
competition, the level of credit ratings is higher and the bond yields are lower.
Variable Coefficient t-statistic Probability
C 20,61 785,71 0,000
Market share 0,38 3,94 0,0001
Next we measure the effect on the correlation between credit ratings and bond
yields when the level of competition increases. We do this by splitting up our
sample. In one part we measure the correlation in a period of low competition
(1996 to 2000) and in the other part we measure the correlation in a period of high
competition (2001-2011). The results are shown below and indicate that credit
ratings and bond yield spreads are less correlated in a period of high competition.
1996-2000 rating yield
rating 1.000 -0.0877
yield -0.0877 1.000
2001-2011 rating yield
rating 1.000 -0.0662
yield -0.0662 1.000
The overall results of the above tests show that correlation decreases as
competition increases, meaning that a high market share of Fitch implies bond
yields to be less related to credit ratings. In terms of information transmission we
can conclude that credit ratings are less informative about bond yields in periods
of high competition. This is in line with our above results that lower quality
ratings are a consequence of higher competition.
EMPERICAL STUDY | 37
Drawbacks
By analyzing the results, we must take into account that when bonds come closer
to maturity, the price of the instruments will increase because the remaining
maturity drops and hence the risk decreases. This causes the yield to decrease as
well and is in line with our results that an increase in rating levels (decrease in
risk) is negatively correlated with the yield level. Another point of interest is the
fact that we only used bonds with maturity of ten years and only one random bond
per firm. Our results are probably not biased by the previously mentioned effect of
rating shopping because there is limited evidence for rating shopping among
corporate bond issuers, see Cantor and Packer (1997) and Jewell and Livingston
(1999).
2.3.3 Test 3: Predicting default
Our final test concerns a measure of informativeness of credit ratings, which is
examined by their ability to predict future defaults. The ability to predict default is
one of the major functions of credit ratings, which makes the relevance of this test
very high. On the other hand we must notice that corporate defaults are rare which
decreases the explanatory power of this test. An ideal rating should be able to
predict default by taking only accounting data about the rated firm into account,
and go beyond what easily measurable data can predict.
We regress future default in one year on market share, a dummy for investment
grade ratings and an interaction of market share and the dummy for investment
grade ratings.
Regression model:
DEFt= α + β1INVt + β2MARt + β3INVt*MARt + ε
Dependent variable:
DEFt = Default in year t
Independent variable:
INVt = Investment grade rating in year t
EMPERICAL STUDY | 38
MARt = market share in year t
INVt*MARt = interaction effect
The results of the test, which shows the prediction that a firm will receive a ‘D’
level rating within 1 year are shown below.
Variable Coefficient t-statistic Probability R Squared
C 0,22 20,58 0,000 0,18
Investment -0,22 -18,67 0,000
Market share -0,04 -1,06 0,288
Investment*market
share
0,03 0,87 0,385
The dummy for investment grade ratings is significant and has a negative
coefficient (-0,22) meaning that firms which received an investment grade rating,
are less likely to default within one year. The interaction between the market share
and the dummy variable is positive (0,03), which means that when there is more
competition, the difference between a default rate predicted by an investment
grade level rating and a rating with a level beneath investment grade (speculative
grade)10
, decreases. When we do the test again but replace the dummy variable
with the rating variable, we notice that the results are comparable.
Regression model:
DEFt= α + β1RATt + β2MARt + β3RATt*MARt + ε
Dependent variable:
DEFt = Default in year t
Independent variable:
RATt = rating level in year t
MARt = market share in year t
RATt*MARt = interaction effect
Variable Coefficient t-statistic Probability R Squared
C 0,56 21,42 0,000 0,08
rating -0,03 -20,25 0,000
10
Speculative grade is a rating with a level beneath BBB- for S&P and Fitch and beneath Baa3 for
Moody’s
EMPERICAL STUDY | 39
Market share -0,95 -11,68 0,000
rating*market share 0,05 11,43 0,000
The coefficients on rating and market share are both negative (-0,03) and (-0,95)
respectively and significant. The coefficient on the interaction between rating and
market share is again positive (0,05) and significant. By looking at the R^2 ,
which is only about 0,09, we notice that the predicting power of the model
decreased.
By analyzing the results of both models, we can conclude that higher competition
does coincide with lower quality ratings. This because the interaction in both
models was positive, meaning that the power to predict defaults of speculative
rating levels decreases when competition increases and hence the quality of the
ratings decreases.
The results of the above mentioned models might be biased because of the
absence of controls. In the next model we will examine the predictive power of
ratings after controlling for year and firm fixed effects. Results show that the
overall fit of the model is better (R^2 of model 1 increases from 0,18 to 0,22 and
the R^2 of model 2 goes up as well from 0,08 to 0,14) and that the introduction of
fixed effects does not change the overall conclusion about the predictiveness of
ratings.
Variable Coefficient t-statistic Probability R Squared
C 0,22 16,75 0,000 0,22
Investment -0,01 -0,22 0,827
Market share -0,22 -17,52 0,000
Investment*market
share
0,03 0,91 0,360
Variable Coefficient t-statistic Probability R Squared
C 0,55 19,99 0,000 0,14
rating -0,90 -10,42 0,000
Market share -0,02 -17,09 0,000
rating*market share 0,03 8,15 0,000
EMPERICAL STUDY | 40
We must draw attention to the fact that industries vary in the possibility to predict
defaults. This could bias our results because it might lead to smaller differences in
default predictions between investment and non-investment grade firms in those
industries where it is harder to predict defaults. We can control for this by
including industry fixed effects and an interaction of ratings with those industry
dummies.
Results show that by controlling for industry fixed effects, the predictive power of
the model slightly increases (R^2 goes up from 0,08 to 0,09).
Regression model:
DEFt= α + β1RATt + β2MARt + β3RATt*MARt + β3IND22+ β3IND32 + β3IND31 +
β3IND33+ ε
Dependent variable:
DEFt = Default in year t
Independent variable:
RATt = rating level in year t
MARt = market share in year t
RATt*MARt = interaction effect
IND22 = if the firm is present in industry 22 = 1, if not = 0 (22: utilities)
IND32 = if the firm is present in industry 32 = 1, if not = 0 (32: chemicals)
IND31 = if the firm is present in industry 31 = 1, if not = 0 (31: manufacturing)
IND33 = if the firm is present in industry 33 = 1, if not = 0 (33: furniture)
Variable Coefficient t-statistic Probability R Squared
rating -0,02 -18,76 0,000 0,09
Market share -0,77 -9,36 0,000
Rating*market
share
0,04 9,80 0,000
I_22 0,50 19,00 0,000
I_32 0,55 20,83 0,000
I_31 0,48 15,49 0,000
I_33 0,53 20,40 0,000
EMPERICAL STUDY | 41
The coefficients on the different industry dummies show that the default
prediction does not differ significantly across the different industries (all
coefficients are about 0,5), which can also be seen from the interactions between
rating- and industry variables.
Drawbacks
A major disadvantage related to this test is that corporate defaults are rare, which
has a limiting effect on the results of the test. Our sample consists of 139 firms
ranking from 1996 to 2006 and 105 events of default at the one year horizon after
a rating was given.
2.3.4 Interpretation of the results
The overall conclusion we can draw from the three above mentioned tests is that
the entry of the third rating agency, Fitch, had a significant negative impact on the
quality of the ratings which is in line with the existing literature. This decrease in
quality can be defined both as an increase in rating levels and a decrease in default
predictability as a consequence of increased competition. These conclusions are
consistent with the previously mentioned reputational capital view. According to
the reputational capital view, efforts of credit raters to maintain a credible
reputation would decrease when there was a drop in the potential gains of a good
reputation. The decrease in those reputation building efforts would cause the
rating quality to diverge as well. As also mentioned before, entrance of Fitch is
more likely in situations where low ratings are published because of the effect of a
third opinion. This excludes the potential danger that our findings are biased
because of a reverse causality effect in which entrance is more likely in situations
where high ratings are given, and hence as a consequence when market share
increases, rating levels increase as well. Our findings are in line with those from
Camanho et al. (2011), which showed as well that increased competition weakens
the disciplining effect of reputation as opposed to a situation with fewer players.
When there are more players on the rating market, credit rating agencies are not
EMPERICAL STUDY | 42
concerned enough about their reputation to prevent them from lying about the
level of the ratings. As previously mentioned, competition generates two effects,
named the disciplining and the market-sharing effect. The results of our tests
show that the disciplining effect will be larger compared with the market-sharing
effect as a consequence of increased competition which generates concerns for
their reputation. The overall conclusions of our three tests may formulate a caveat
to the European proposal of 15 October 2011 for a new CRA regulation in which
one of the proposed measures is that of increased competition. (Proposal
2011/0361) One must however keep in mind that besides these negative
consequences, competition obviously also generates benefits, by creating
additional information because of the extra ratings published, which has a positive
effect on the financial market.
In our economic model we made use of the issuer-pays model, in which there
exists a lack of independency between the credit rater and the rated entity and
hence the incentives of both converge. This problem can never be solved by
increased competition, as this will only cause the disciplining effect to increase in
order to favor the issued entity. A possible solution can be to reintroduce the
investor-pays model. Another possible solution is the government-pays model.
Two alternative solutions - the platform-pays model and the payment-upon results
model - and their positive and negative factors will be discussed in the next part of
our thesis.
2.4 Alternative interpretation
The general conclusion of the three tests was that an increased level of credit
ratings due to an increased level of competition was explained by a decline in
reputation building efforts.
Another possible explanation for our observations, being the increase in rating
levels, is that with the entrance of Fitch, the low-quality firms had an incentive to
switch to the entrant firm. Fitch, doing efforts to increase its market share, tried to
attract firms by giving them a favorable rating and the low-quality firms saw an
EMPERICAL STUDY | 43
opportunity for an upgrade of their ratings. As a consequence, most of the high-
quality and hence high-rated firms, are dedicated to the incumbent firms, which
caused the general rating level of these firms to increase. To affirm this
assumption, we drew a graph which reflects the evolution in the solvability of the
clients of S&P, the incumbent firm. Solvability is measured as total assets over
total liabilities. Our dataset consists of the NAICS firms we used in the above
tests.
As you can see from the line graph, there is a general increase in the solvability of
the clients of S&P, meaning that either the equity has increased or the liabilities
have decreased. These are the previously defined high-quality firms, which
receive higher ratings and cause the general rating level of S&P to increase. This
view can serve as an alternative interpretation for our results of increased rating
levels.
3
3,2
3,4
3,6
3,8
4
Evolution solvability clients of S&P
Total assets/Total liabilities
ALTERNATIVE MODELS | 44
3 ALTERNATIVE MODELS
3.1 Investor pays model
Before 1970, an investor pays model was applicable in the rating industry. This
means that it is the investor who pays for obtaining a rating. This enterprise model
could be an alternative for the ruling issuer pays model, but neither is this model
free from critic and problems (Seaborn, 2010).
A comparison between both models definitely reveals that two different interests
are being served and that the rating results could differ according to whose
preference is being granted. In the issuer pays model, the issuers pay for the
ratings, so they will benefit from their offer being rated as high as possible so they
have a good chance to attract investors. This way issuers could ‘shop’ for the
highest rating. Contrary, in the investor pays model, it are the investors who pay
and they want a rating as accurate as possible. Here the opposite may occur, and
ratings may be lower-than-warranted so investor can achieve a higher yield
(Kudva, 2010). Although,it is too easy to impute the rating bias completely to the
choice of business model. Also other factors, like experience, market power etc.
play an important role.
In the issuer pays model, the rating agencies often receive private information
about the enterprise. The rating process implies that the rating bureaus conduct an
in-depth research in the issuing company and obtain a lot of information regarding
that company that is not publicly known. In contrast, the investor pays model
remains focused on publicly available information because there is little or no
interaction with the company that is issuing an obligation (Caprio, 2012).
One of the most important differences is that the ratings in the investor pays
model are no longer distributed among the public, but only available for the
investor who paid for them. So a lot of small potential investors will be bypassed
because they can not afford a rating. But a problem of free-riding could emerge
ALTERNATIVE MODELS | 45
(Fennell & Medvedev, 2011). Thanks to modern technology, information can be
disseminated way faster and so it does not take long before ratings paid for by one
investor, leak out to the wider public. This way there will be investors who never
paid for a rating themselves, but do profit from the availability. The willingness to
pay of investors decreases, leading to declining revenues for the rating agencies,
which does not benefit the quality of information. However, this problem is being
weakened by the fact that there is always a delay on the leaking of information,
and some investors though are willing to pay to avoid the delay (Deb & Murphy,
2009).
As already mentioned, before 1970 rating bureaus made use of the investor pays
model, whereafter they transferred to the issuer pays model. Reasons for this
transfer could be found in the fact that the emergence of the photo copy machine
enlarged the free-riding problem, whereby rating agencies feared losing part of
their revenues (White, 2010). Also more complex financial products asked for a
more in-depth analysis, which causes the need for CRAs to collect more financial
resources by charging the issuer (Jiang, 2012). Another reason can be found in the
bankruptcy of Penn-Central Railroad on 1970. This triggered a wake-up call for
bond issuers to ensure that their bonds were low risk and so they were prepared to
pay the rating agencies for this (Hill, 2004).
It needs to be noted that the size of the fee is not regulated.11
It depends on the
size and nature of the instrumented being rated. Another remarkable point is that a
small part of the revenue of the three big rating agencies still stems from
subscriber-based services (Fennell & Medvedev, 2011). Also, while most of the
NRSRO’s are employing an issuer-pays model, still a few other use a subscriber-
based business model. In figure 1, you can find the ten NRSRO’s together with
the business models they use. 12
11
U.S. Securities and Exchange Commission, "Report on the Role and Function of Credit Rating
Agencies in the Operation of the Securities Markets, As Required by Section 702(b) of the
Sarbanes-Oxley Act of 2002", January 2003, 41. 12
U.S Securities and Exchange Commission, "Summary Report of Commission Staff’s Examinations of Each Nationally
Recognized Statistical
Rating Organization, As Required by Section 15E(p)(3)(C) of the Securities Exchange Act of 1934", November
2012, 22p.
ALTERNATIVE MODELS | 46
3.2 Government pays model
Another possible model is the government pays model. The EU Commission
called this a public utility model.13
This model is sometimes put forward because
the services of rating agencies perform a public function. The government creates
the rating agency and closely monitors it. It does not have an exclusive rating
responsibility, but the ratings can be used to be compared with those of the private
rating agencies. Finance could come from various resources: taxes, fees paid by
the issuers etc.
The advantage, just like the issuer-pays model, is that the ratings would be
publicly available, free of charge. But also this model has its own disadvantages.
A possible conflict of interest may arise. It is not inconceivable that the
government may exercise some pressure on the ratings when a company needs to
be rated in which the government has a particular interest (Sweeney, 2010). It is
also possible that people perceive the ratings of a public entity very reliable and of
high quality. An over-reliance on those ratings can exist, even more than with the
private ratings. Another possible danger is that the private rating agencies are
crowed out and barriers to enter may be reinforced. This is not to the benefit of
market competition.
Today, no rating agency is based on the government-pays model. However, with
the necessary resources, time, and alignment of all the governments, a high
quality business model may be introduced (Alcubilla & Del Pozo, 2012).
3.3 Alternatives
Apart from the three models described above, other suggestions are possible too.
One suggestion of the Financial Services Authority is to create a platform
model.14
The platform would work as an intermediary between the issuer and the
13
European Commission, "Public Consultation on Credit Rating Agencies", November 2010, 28
. 14
FENNELL
, D. and MEDVEDEV
, A., An economic analysis of credit rating agency business models and ratings accuracy, Financial Services Authority
Occasional paper, November 2011, 2224.
This platform model is also suggested in the following paper:
J.MATHIS, J.MCANDREWS and J.C.ROCHET, “Rating the raters: Are reputation concerns powerful
enough to discipline rating agencies?”, Journal of monetary economics 2009, 657- 674.
ALTERNATIVE MODELS | 47
rating agency. The issuer can not choose which CRA he wants to use, but it is the
platform that selects a rating agency. The issuers pay the fees to the platform, and
the platform pays them to the selected CRA. This way rating shopping is
eliminated. However, a lot of issues may arise. For example, which CRA is
chosen for which transaction? Will there only be one platform or multiple
platforms? Does the fee has to be based on the quality of the rating or a flat fee? It
is clear that there needs to be a lot of thinking and developing before this platform
can be introduced.
Recently such a platform has been created. End 2011 "Wikirating" went online.
Wikirating is an online credit rating platform whereby everyone can contribute.
Any individual can issue ratings, based on a method described by Wikirating. An
experts board provides their expertise to assess the methods. All input is published
and can be modified by others. A forum is available to discuss the ratings. The
aim is to provide a more reliable risk assessment (Greenwood, 2012).
Momentarily there are 742 registered users and Wikirating aims at reaching a
whole community of active users and even at being an alternative for the private
agencies.
As the table, illustrated in figure 2, indicates15
, the ratings of S&P, Moody's,
Fitch and Dagong tends to be higher, compared to the ratings of Wikirating. This
could be an indication of the already mentioned criticism that ratings of the three
big CRA's were downgraded too slowly in the years before the crisis. This
because the CRA's were too lax and they wanted to please the issuers.
Another solution put forward by the European Commission is the payment-upon-
results model.16
Here, the fees of the rating agencies are based on future
performance. If a bond they rated performs well, the agencies should receive a
higher fee. This could be realized by putting a substantial proportion of the
15
Printscreen of a few countries, from www.wikirating.org/wiki/List_of_countries_by_credit_rating_-_comparisons. In total 198 countries are listed.
Polling and SWI are 2 methods used by Wikirating for calculating the rating. The period of the polling runs from November 18th, 2011 - December
30th 2011, period for the ratings of S&P, Moody's, Fitch and Dagong runs from March to November 2011.
16 European Commission, "Public Consultation on Credit Rating Agencies", November 2010, 27.
ALTERNATIVE MODELS | 48
payment into an escrow account. When the bond effectively performs well, the
money can be returned to the CRA's. Rating agencies can also borrow from that
fund so they can finance their activities. It is also required to publish the schemes
on which the deferred payment is based. This way transparency is created and
investors can determine themselves which scheme is preferred. But the downside
of this model is the question who assesses the results and in what way (Alcubilla
& Del Pozo, 2012). Rating agencies might have an incentive to manipulate their
methodology to reach the desired result.
Section 939F of the Dodd Frank Act already required the Securities and Exchange
Commission to evaluate alternative models. 17
It is clear that there are a lot of
opportunities available to circumvent the conflicts of interest that are inherent in
the issuer-pays model. But as described above, creating another compensation
model would come with its own benefits and adversities and might introduce
other conflicts of interest. It would also take a lot of effort, time and financial
resources to switch to a complete different model.
17
U.S. Securities and Exchange Commission, "Report to Congress on Assigned Credit Ratings, As Required by Section
939F of the Dodd-Frank Wall Street Reform and Consumer Protection Act", December 2012, 83p.
CONCLUSION| 49
4 Conclusion
We measured the effect of increased competition on the quality of credit ratings
by analyzing the effect of the entrance of a third rating agency, Fitch. Results
show that this coincides with lower overall quality, which is defined as an
increase in the level of credit ratings and a decrease in informativeness of the
ratings. However, we must note that this increase in level of credit ratings could
not be exclusively assigned to the effect of increased competition. One must take
into account that a credit rater is able to review and upgrade a credit rating when a
firm is actually doing better. An alternative explanation for the increase in the
level of credit ratings could be the fact that with the entrance of Fitch, the low-
quality firms had an incentive to switch to the entrant to receive a higher rating
and hence most of the high-quality firms are dedicated to the incumbents, which
causes the level of ratings of those incumbents to increase.
Our thesis is based on the research by Becker and Milbourne (2010), where they
focused on North American firms, we enlarged the sample to worldwide
industries. Our results were in line with those from Becker and Milbourne, which
is that increased competition could not serve as a solution to increase the quality
of credit ratings. We did a literature study to find alternative solutions to solve the
previously mentioned conflicts of interest and came to the conclusion that there
are alternatives which each have the power to solve the independency problem,
but other side effects might appear. Stronger regulation concerning credit rating
agencies can contribute to diminishing the conflicts of interest related to credit
raters, especially when this regulation is harmonized on European level. Currently
a proposal for a new European directive, proposal N° 2011/ 0361, is introduced
but is not implemented yet. The evolution in the regulation concerning credit
rating agencies is examined in more detail in the legal thesis of Anne Goor.
An interesting continuation to our research could be to investigate the behavior of
the clients and to consider whether they could be categorized based on their
switching behavior. A possible outcome is that the low-quality firms have an
incentive to switch to the entrant to receive a higher rating, leaving the
incumbents with the high-quality firms, and hence the higher ratings.
BIBLIOGRAPHY | 51
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Recognized Statistical Rating Organization, As Required by Section 15E(p)(3)(C) of the Securities Exchange Act of 1934,
November 2012
, 22p.
Sites
http://www.moodys.com [27/02/2013]
http://multiple-markets.com/3ratingschart.htm [12/11/2012]
http://www.law.cornell.edu/cfr/text/17/240.15c3-1 [08/03/2013]
http://www.sec.gov/news/speech/2008/spch030308psa.htm [08/03/2013]
http://www.fitchratings.com [12/11/2012]
http://www.standardandpoors.com [12/11/2012]
http://www.wikirating.org [08/03/2013]
www.wikirating.org/wiki/Wikirating:Stats [09/03/2013]
ATTACHEMENTS | 58
Attachments
Table 1: Fitch market share per NAICS industry in periods 1996-2000 and 2001-2006
NAICS Industry name
Fitch market share
1996-2000 2001-2006
11 Agriculture, Forestry, Fishing and Huntin 0,0890909 0,228662
21 Mining, Quarrying, and Oil and Gas Extraction 0,2155278 0,264468
22 Utilities 0,2983342 0,3434
23 Construction 0,09058582 0,284794
31 Manufacturing: Food, Textile, Apparel 0,16278246 0,304006
32 Manufacturing: Wood, Paper, Printing, Petroleum, Chemicals, plastics 0,14286914 0,25898
33 Manufacturing: Metals, Machinery, Computers, Electrical, Furniture 0,19036782 0,275442
42 Wholesale Trade 0,13961388 0,243745
44 Retail Trade: Motor Vehicles, Furniture, Electronics, Food, Gas 0,08873534 0,275108
45 Retail Trade: Sporting goods, Books, Florists, Office Supplies, Mail-Order, Vending 0,1773136 0,397773
48 Transportation and Warehousing: Air Transport, Water Transport, Trucks, Pipelines 0,110862 0,168662
49 Transportation and Warehousing: Messengers, Storage 0,07326618 0,19949
51 Information 0,17411466 0,283829
52 Finance and Insurance 0,2926001 0,3574
53 Real Estate and Rental and Leasing 0,16730892 0,420202
54 Professional, Scientific, and Technical Services 0,17948532 0,26916
55 Management of Companies and Enterprises 0,16053182 0,341544
56 Administrative and Support and Waste Management and Remediation Services 0,1253776 0,294356
61 Educational Services 0,12857142 0,276974
62 Health Care and Social Assistance 0,18440676 0,269093
71 Arts, Entertainment, and Recreation 0,14359684 0,211729
72 Accommodation and Food Services 0,13456064 0,303645
81 Other Services (except Public Administration) 0,1242837 0,223923
92 Public Administration 0,15113262 0,360416
ATTACHEMENTS | 59
Table 2: Fitch market share per MSCI World industry in periods 1996-2000 and 2001- 2006
Industry
Fitch marketshare
1996-2000 2001-2006
Basic Materials 0,09066 0,135983
Communication 0,14306 0,290567
Consumer, cyclical 0,0812 0,114417
Consumer, non-cyclical 0,07452 0,124133
Diversified 0,07502 0,155033
Energy
0,0695 0,1549
Financial
0,2067 0,378517
Industrial
0,8132 0,255233
Technologie 0,06754 0,107033
Utilities
0,21396 0,270117
Government 0,23426 0,281733
Figure 1
ATTACHEMENTS | 60
Figure 2
from www.wikirating.org/wiki/List_of_countries_by_credit_rating_-_comparisons.
Samenvatting
Deze paper omvat een kritische analyse omtrent de rol die credit rating
agentschappen spelen in de financiële wereld. Hierbij zal dieper ingegaan worden
op de bijdragen en het belang van credit ratings bij het tot stand komen van het
minimum kapitaal van financiële kredietinstellingen. Vervolgens zullen de meest
voorkomende problemen die geassocieerd worden met credit rating
agentschappen besproken worden. Als gevolg hiervan zal onderzocht worden of
de huidige regulering inzake credit rating agentschappen een oplossing kan bieden
om tegemoet te komen aan deze conflicten. Tot slot zal ook het Europese voorstel
tot een vernieuwde regulering aan bod komen en de mate waarin deze bijdraagt
aan het tot stand komen van een efficiente rating markt. De paper zal besloten
worden met een algemeen besluit.
INHOUDSOPGAVE | III
Inhoudsopgave
Inhoudsopgave ................................................................................................................. iii
Lijst van afkortingen ........................................................................................................ iv
Inleiding.............................................................................................................................. 5
Tekortkomingen credit rating agentschappen ............................................................... 8
1.1 Gebrekkige ratingmethoden van ratinginstituten ............................................ 8
1.2 Exclusiviteit van de ratingagentschappen ...................................................... 9
1.3 Gebrek aan onafhankelijkheid van de CRA’s ............................................... 10
1.3.1 Credit rating agentschap oefent druk uit op de onderneming ............ 10
1.3.2 De onderneming oefent druk uit op het credit rating agentschap ...... 11
1.4 Geen civielrechtelijke aansprakelijkheid ....................................................... 11
2 Minimum kapitaal vereisten voor financiële instellingen ................................. 13
2.1 Berekening minimumkapitaal ....................................................................... 13
2.1.1 Interne rating systeem ........................................................................ 14
2.1.2 Externe rating systeem ....................................................................... 15
3 Evolutie in de regulering ...................................................................................... 16
3.1 IOSCO-gedragscode .................................................................................... 16
3.2 Nood aan strengere regulering? ................................................................... 18
3.2.1 Capital Requirements Directive .......................................................... 18
3.2.2 Market Abuse Directive ...................................................................... 19
3.3 Europese regulering inzake credit rating agentschappen ............................ 19
3.4 Voorstel tot vernieuwde Europese verordening ........................................... 24
4 Besluit .................................................................................................................... 28
Bibliografie....................................................................................................................... 29
LIJST VAN AFKORTINGEN | IV
Lijst van afkortingen
SEC = Securities and Exchange Commission
NRSRO = Nationally Recognized Statistical Ratings Organizations
CRA = Credit Rating Agency
IOSCO = International Organization of Securities Commissions
CRD = Capital Requirements Directive
BIS = Bank for International Settlements
RWA = Risk Weighted Asset
CESR = Committee of European Securities Regulators
MiFID = Markets in Financial Instruments Directive
FSAP = Financial Services Action Plan
ESMA = Europese Autoriteit voor Effecten en Markten
EURIX = European Rating Index
BW = Burgerlijk Wetboek
INLEIDING | 5
Inleiding
In deze master paper zal onderzoek gedaan worden naar de rol van externe rating
bureaus bij de berekening van minimum kapitaalvereisten voor financiële
instellingen. Vanwege de grote hoeveelheden risicovol passief dat een financiële
instelling dagelijks aanhoudt en dat vaak op korte termijn moet terugbetaald
worden, is het essentieel om vanuit solvabiliteitsoogpunt aan deze entiteit
bepaalde minimumvereisten inzake kapitaal op te leggen.Aan de hand van ratings
wordt bepaald hoe risicovol een bepaalde transactie is, hierbij wordt onder meer
rekening gehouden met de solvabiliteit van de kredietnemer. Sinds de introductie
van Basel II, kan een financiële instelling opteren om deze berekeningen intern te
doen dan wel beroep te doen op een extern gegev rating. Externe credit rating
agentschappen (later in de paper cra’s genoemd) zijn ondernemingen die op
zelfstandige basis en tegen betaling de kredietwaardigheid van een entiteit of een
transactie berekenenen en hier een rating voor bepalen. Aangezien het niveau van
zulke ratings van groot belang is voor de bepaling van het minimum kapitaal, is
het essentieel om na te gaan of er eventueel preverse incentieven optreden bij het
gebruik van externe credit ratings en of er een verhoogde regulering nodig is om
hieraan tegemoet te komen.
In het verleden vertrouwde men erop dat de betalingen die de cra’s van de issuers
ontvingen in ruil voor hun ratings en die hen konden stimuleren om te raten in het
voordeel van de issuer niet aanzienlijk genoeg waren om hen ook daadwerkelijk
die incentieven te laten volgen. Men dacht echter dat het hebben van een goede
reputatie en een waarheidsgetrouw beeld naar de buitenwereld, van groter belang
waren voor de cra’s. 18
Deze visie wordt ook wel de ‘reputational capital view’
genoemd.19
Hierbij is het van groot belang dat de rater bepaalde doelstellingen
naleeft om zo het vertrouwen van de clienten voor zich te kunnen winnen. Verder
zal het belangrijk zijn dat de cra aangeeft dat ze een meerwaarde kan betekenen en
18
A. W.A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financiel studies
2006, 18-20.
19 D. KERWER, “Holding Global Regulators Accountable: The Case of Credit Rating Agencies”,
An international journal of policy, administration and institutions 2005, 453-475.
INLEIDING | 6
dat ze dus toegang heeft tot informatie die de issuer van die informatie niet heeft.
20 Dit alles zou volgens de reputational capital view de ideale basis zijn voor een
zelfregulerend systeem want wanneer clienten het gevoel niet meer hebben dat de
cra waarheidsgetrouwe ratings oplevert, zullen ze geen geloof meer hebben in hun
waarderingen en zullen ze minder willen beleggen in die gewaardeerde
producten.21
Hierdoor zal een rating van zulke cra geen meerwaarde meer
opleveren voor de issuer en zal hij niet langer bereid zijn te betalen voor hun
diensten.22
Deze benadering gaat er dus van uit dat de kwaliteit van een rating
gewaarborgd zal worden door het potentiële verlies van reputatie eerder dan door
een verhoogde mate van regulering.
Nochtans heeft het gebruik van externe ratings in het verleden een enorm grote
invloed gehad en een aanzienlijke rol gespeeld in het verloop van de financiële
crisis. Die is namelijk in hoofdzaak ontstaan doordat banken handelden en
transacties verrichtten zonder dat ze hiervoor een voldoende buffer hadden. Hun
reserves waren onvoldoende om te voldoen aan de opvragingen van geld. Dit
kwam doordat credit raters vaak een vertekend beeld van de werkelijkheid gaven
als gevolg van de perverse incentieven die gepaard gaan met het gebruik van
cra’s. Zo ontstond de nood om de regulering van cra’s ook op Europees niveau te
optimaliseren.
Deze master thesis zal een analyse inhouden van de tekortkomingen van cra’s
enerzijds en de oplossingen die hiervoor geboden worden in de Europese
regulering anderzijds. De paper bouwt voort op de economische paper, waarin
verhoogde regulering als een alternatief gezien werd om tegemoet te komen aan
de conflicts of interest met betrekking tot cra’s. De onderzoeksvraag die hierbij
aan bod zal komen luidt als volgt: ‘Heeft het gebruik van externe credit rating
agentschappen een toegevoegde waarde bij de berekening van het minimum
kapitaal of treden er perverse incentieven op? En zo ja, kan hiervoor een oplossing
20
F. PARTNOY, “The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit
Rating Agencies.”, Washington University Law Quarterly 77 1999, 619-712. 21
J. MATHIS, J. MCANDREWS, J.C. ROCHET, “Rating the raters: Are reputation concerns powerful
enough to discipline rating agencies?”, Journal of monetary economics 2009, 657- 674. 22
J.P. HUNT, “Credit Rating Agencies and the 'Worldwide Credit Crisis': The Limits of
Reputation, the Insufficiency of Reform, and a Proposal for Improvement”, Columbia Business
Law Review 2009, 109-209.
INLEIDING | 7
gevonden worden in de Europese regulering?’ Bij het onderzoek naar deze vraag
zal eerst besproken worden met welke tekortkomingen een cra geconfronteerd
wordt. Vervolgens zal de werking van externe rating kantoren verder worden
toegelicht en zal deze methode vergeleken worden met een intern rating systeem.
Verder zal de paper een overzicht weergeven van de evulotie in de regulering van
cra’s als antwoord op de tekortkomingen.
TEKORTKOMINGEN CREDIT RATING AGENTSCHAPPEN | 8
Tekortkomingen credit rating agentschappen
Cra’s zijn ondernemingen die op zelfstandige basis ratings verlenen aan andere
ondernemingen.23
Hierbij wordt een extern rating systeem toegepast waarbij de credit
agentschappen tegen betaling van de kredietnemer,de kredietwaardigheid van deze entiteit of
het risicoprofiel van een financiële transactie berekenen.24
Hierbij komen echter vaak allerlei
problemen kijken die het getrouwheidsgehalte van de ratings naar beneden halen.25
Enkele
belangrijke belangenconflicten zullen hier verder besproken worden: Gebrekkige
ratingmethoden van ratinginstituten (1.1), de exclusiviteit van de ratingagentschappen (1.2),
gebrek aan onafhankelijkheid van CRA’s (1.3), geen civielrechtelijke aansprakelijkheid
(1.4).26
Hierbij moet vooral aandacht besteed worden aan de drievoudige relatie tussen de emittent of
uitgever, de belegger en de credit rater. De emittent vraagt de diensten van de credit rater in
ruil voor betaling en de belegger doet beroep op de ratings die de credit rater heeft
gegenereerd bij haar beslissing om te beleggen. Tegelijkertijd moet echter in acht genomen
worden dat de reputatie voor een CRA uiterst belangrijk is en dat dit grotendeels een rem zou
moeten zetten op deze perverse incentieven.27
4.1 Gebrekkige ratingmethoden van ratinginstituten
De oligopoliepositie die CRA’s verkregen dankzij het gebrek aan voldoende concurrentie, gaf
aanleiding tot een passieve houding ten opzichten van veranderende marktomstandigheden.
28De agentschappen speelden niet langer in op die veranderende situtatie door haar modellen
en methodes niet, of vertraagd aan te passen. Dit zorgde ervoor dat de kwaliteit van de ratings
23
S. RICHARD, Rating, rating agencies and the global financial system, New York, Publisher US, 2002, 39-41. 24
Artikel 3(1) (a) Regulation (EC) 1060/2009 of the European Parliament and of the Council of credit rating
agencies 25
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2008, 75-
98. 26
A. BOOT “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 11-18. 27
J. MATHIS, J. MCANDREWS, J.C. ROCHET, “Rating the raters: Are reputation concerns powerful enough to
discipline rating agencies?”, Journal of monetary economics 2009, 657- 674. 28
R. CANTOR and F. PACKER , “The credit rating industry”, Federal Reserve Bank of New York Journal
Quarterly review 1994, 1-26.
TEKORTKOMINGEN CREDIT RATING AGENTSCHAPPEN | 9
stapsgewijs afbrokkelde.29
Zo zal de nauwkeurige zorgvuldigheid bij het controleren van de
objectiviteit van beschikbare informatie in de praktijk niet aanwezig zijn, dit louter en alleen
om het feit dat het niet tot de wettelijke verplichtingen hoort van rating agentschappen om hun
informatie te verifiëren.30
Ook zal omwille van het gebrek aan innovatie in de modellen die de
CRA’s hanteren, een overmatig beroep worden gedaan op historische informatie die vaak niet
meer up to date is en een vertekend beeld van de realiteit geeft.31
4.2 Exclusiviteit van de ratingagentschappen
De exclusiviteit of de beperkte mate van concurrentie op de markt van ratingagentschappen is
grotendeels te wijten aan de hoge toetredingsbarrières.32
Om te beginnen moet gezegd worden
dat niet zomaar iedereen kan toetreden, de opstartkosten zullen aanzienlijk hoog zijn,33
bedragen die niet zomaar voor handen zijn. 34
Verder zal het behouden van een goede
reputatie, door een zo waarheidsgetrouw mogelijk beeld te geven, veel inspanningen vragen.35
Dit alles zorgt voor een uiterst geconcentreerd beeld van de ratingindustrie en weerspiegelt
zich in het marktaandeel, 90%, van de drie belangrijkste CRA’s: Moody’s, Fitch en Standard
& Poor’s. 36
Deze oligopolie positie zorgt ervoor dat cra’s in mindere mate kwaliteit van hun ratings gaan
nastreven. De kans dat een onderneming voor de ratingdiensten naar een andere cra zal gaan
is immers toch beperkt, waarom dan inspanningen leveren om de kwaliteit op pijl te
houden?37
Wanneer de nodige aanpassingen niet gebeuren, zal automatisch de kwaliteit
29
A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 12-18. 30
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2008, 75-
98. 31
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg, 2010, 75p.
32 A. BOOT, “Credit ratingbureaus en de stabiliteit van de financiële sector”, Maandblad voor accountancy en
Bedrijfseconomie 2008, 227-234. 33
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg, 2010, 75p.
34 A. BOOT, “credit ratingbureaus en de stabiliteit van de financiële sector”, the economist 2008, 63-72.
35 PARTNOY, F., How and why credit rating agencies are not like other gatekeepers, University of San Diego
School of Law, 2006, 45p. 36
SMANT, D., VAN DER ENT, J.P., Credit rating en kapitaalmarkt: Feiten,verklaringen en ontwikkelingen van
rating in Europa, Financiele en Monetaire Studies Rotterdam, 1994, 70p. 37
EUROPEAN COMMISSION, Public consultation on credit rating agencies, 2010, 32p.
TEKORTKOMINGEN CREDIT RATING AGENTSCHAPPEN | 10
drastisch achteruit gaan,38
dit zal contradictioneel geen effect hebben op de vraag naar de
diensten omwille van de oligopolie structuur van de cra’s.39
4.3 Gebrek aan onafhankelijkheid van de CRA’s
Een idealse situatie zou zijn dat een cra een onafhankelijke onderneming was die niet
gebonden was door haar opdrachtgever, de emittent. In de praktijk is dit echter vaak niet het
geval. Volgens het issuer pays model, is het de emittent die de cra’s uitbetaalt. Dit kan
aanleiding geven tot allerlei tegengestelde belangen.40
Verder in deze paper zullen enkele van
die belangenconfilicten besproken worden. Zo zal de functie van rating agentschappen
uitgebreid worden naar een adviserende rol bij complexe financiële instrumenten.
Ondernemingen zullen naast het raten, ook beroep gaan doen op het advies van CRA’s bij de
aanwending van gecompliceerde en erg technische instrumenten, dit zorgt voor een extra
inkomstenbron voor de cra’s.41
omwille van deze extra inkomst die de agentschappen niet
willen verliezen, zullen ze er alles aan doen om hun client tevreden te stellen.42
Een tevreden
client is een client die een hoge rating ontvangt, dit zal aanleiding geven tot ratings die de
waarheidstoets niet altijd doorstaan43
en eerder naar boven herzien zijn geworden.44
4.3.1 Credit rating agentschap oefent druk uit op de onderneming
De cra zal de mogelijkheid hebben om de onderneming onder druk te zetten doordat zij de
exclusiviteit heeft om de rating van de financiële producten te bepalen. 45
Wanneer de
onderneming niet voldoende biedt in ruil voor deze diensten, heeft de cra46
de optie om te
dreigen de rating op een negatieve wijze te herzien waardoor het financiële product lager
38
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg, 2010, 75p.
39 L. WHITE, “The credit rating agencies”, Journal of economic perspectives 2010, 211-226.
40 R. KUDPA, “issuer-pays model ensures ratings are available to the entire market”, The economic times 2010,6-
8. 41
K. DONKERS, P.J.W. DUFFHEUS EN W.C.T. WETERINGS, " Credit Rating Agencies: Informatie-asymmetrie en
civiele aansprakelijkheid", Maandblad voor Accountancy en Bedrijfseconomie 2010, 506-515. 42
R. CANTOR and F. PACKER, “The credit rating industry”, Federal Reserve Bank of New York Journal
Quarterly review 1994, 1-26. 43
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg, 2010, 75p.
44 COVITZ, D., HARRISON, P., Testing conflicts of interest at bond rating agencies with market anticipation:
evidence that reputation incentives dominate, working paper, Division of Research and Statistics
Washington, 2003, 37p. 45
A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 11-18. 46
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg, 2010, 75p.
TEKORTKOMINGEN CREDIT RATING AGENTSCHAPPEN | 11
gewaardeerd wordt dan de echte waarde. In de studie van Goh en Ederingtion (1993) is
onderzoek gedaan naar het effect van een downgrade. Dit is het naar beneden herzien van een
rating. Resultaten duiden aan dat het effect op het beleggingsgedrag aanzienlijk negatief is bij
een downgrade, in tegenstelling tot de effecten van een upgrade die nauwlijks merkbaar zijn.
47
4.3.2 De onderneming oefent druk uit op het credit rating agentschap
Niet enkel de CRA, maar omgekeerd kan ook de onderneming druk uitoefenen op de
ratingagentschap. Zo zal de uitbetaling die een ratingagentschap ontvangt voor haar diensten,
afhankelijk kunnen zijn van de grootte van de emittent die de diensten aanvraagt en betaalt.48
Op deze manier kunnen grotere ondernemingen een druk leggen op de schouders van de
agentschappen omdat ze bij een ongevraagde negatieve rating de kans lopen om de uitkering
te verliezen en zal er in de toekomst op hen geen beroep meer gedaan worden.49
Deze tegengestelde belangen van de onderneming en anderzijds de CRA zorgen voor een
aanzienlijke vermindering van de kwaliteit.50
De CRA is voor haar ratings en dus ook voor
haar financiële inkomsten immers afhankelijk van de emittent, die eveneens de betaler is.51
Het is in het belang van de emittent dat de rating zo hoog mogelijk is52
om zoveel mogelijk
beleggers te kunnen aantrekken.53
De CRA heeft er dan weer alle belang bij dat de rating zo
waarheidsgetrouw mogelijk is, zodat dit kan worden toegeschreven aan haar goede reputatie.
4.4 Geen civielrechtelijke aansprakelijkheid
De reputational capital view benadering heeft doorheen de jaren moeten wijken voor een meer
strikte regulering. Hierbij werden de toetredingsbarrières verhoogd, waardoor de ratingmarkt
47
L. CRABBE, M. POST, “The effect of a rating downgrade on outstanding commercial paper”, The journal of
finance 2012, 39-56. 48
R. KUDPA, “issuer-pays model ensures ratings are available to the entire market”, The economic times 2010,6-
8. 49
F. PARTNOY, “The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit Rating
Agencies.”, Washington University Law Quarterly 77 1999, 619-712. 50
K. BHANOT, A. MELLO, “Should corporate debt include a rating trigger?, Journal of financial economics 2006,
69-98. 51
STROBL, G., XIA, H., The issuer pays rating model and ratings inflation: evidence from corporate credit
ratings, working paper Business School University of North Carolina, 2011, 41p. 52
A. BOOT., “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 11-18. 53
R. KUDPA, “issuer-pays model ensures ratings are available to the entire market”, The economic times 2010,6-
8.
TEKORTKOMINGEN CREDIT RATING AGENTSCHAPPEN | 12
een oligopolische vorm kreeg en de drie grote cra’s zo een toezichtrechtelijke afhankelijkheid
konden verwerven. 54
Dit verleende aan cra’s de exclusiviteit om vergunningen inzake handel
van financiële instrumenten te verkopen.55
Het is net die oligopolie positie die ertoe geleid
heeft dat de kwaliteit van de ratings van afnemend belang was56
, louter en alleen omdat zij de
enigen waren waarbij zulke vergunningen konden verkregen worden.57
Het logische gevolg
was dan ook dat de reputational capital view vanaf toen niet meer opging en dat er nood was
aan een striktere regulering.58
Een mogelijke verklaring hiervoor is dat de civielrechtelijke
aansprakelijkheid ervoor zou zorgen dat CRA’s de kwaliteit van hun ratings zouden
garanderen om zo civielrechtelijke claims te vermijden.59
In de praktijk was dit echter
helemaal anders, de aansprakelijkheidsmogelijkheden van ratingbureaus zijn namelijk zeer
beperkt en er is zelfs de mogelijkheid tot civielrechtelijke immuniteit van de ratingbureaus. 60
Een verdere uiteenzetting van deze aansprakelijkheid valt echter buiten het bestek van deze
thesis.
54
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2007-2008,
75-98. 55
NEIJS, P., De toegevoegde waarde van ratinginstituten ter discussie, working paper universiteit van Tilburg,
2010, 75p. 56
A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 9-18. 57
www.law.yale.edu/documents/pdf/cbl/Partnoy_Overdependence_Credit.pdf 58
SMANT, D., VAN DER ENT, J.P., Credit rating en kapitaalmarkt: Feiten,verklaringen en ontwikkelingen van
rating in Europa, Financiele en Monetaire Studies Rotterdam, 1994, 70p. 59
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2008, 75-
98. 60
K. DONKERS, P.J.W. DUFFHEUS en W.C.T. WETERINGS, " Credit Rating Agencies: Informatie-asymmetrie en
civiele aansprakelijkheid", Maandblad voor Accountancy en Bedrijfseconomie 2010, 506-515.
MINIMUM KAPITAAL VEREISTEN VOOR FINANCIELE INSTELLINGEN | 13
5 Minimum kapitaal vereisten voor financiële instellingen
5.1 Berekening minimumkapitaal
Voor het toezicht op de solvabiliteit van banken is het van groot belang dat de risico’s
waaraan banken dagelijks blootgesteld worden, gemanaged worden. 61
De kapitaalstructuur
kan hier een belangrijke rol spelen door extra reserves aan te leggen per risicodragende
transactie die wordt uitgevoerd. Dit aangehouden kapitaal moet functioneren als een buffer
die de bank moet dekken tegen insolvabiliteit bij geldopvragingen.62
Deze minimum
kapitaalvereisten zijn richtlijnen en voorwaarden die aan banken worden opgelegd met als
hoofddoel de bescherming van deposito’s van het cliënteel. De hoeveelheid minimum kapitaal
zal bepaald worden in functie van het risicogehalte van de financiële instelling.63
Om ervoor te zorgen dat de regulering van de kapitaalstructuur gevolgd wordt door alle
banken wereldwijd, werd de Basel Commissie voor het internationaal toezicht op financiële
instellingen opgericht en kwam er in 1988 het eerste Basel-akkoord.64
Deze richtlijn die
diverse standaarden en solvabiliteitsvereisten oplegt, wordt gevolgd door 100 landen
wereldwijd.65
Binnen deze richtlijnen van Basel, wordt aan banken de optie gegeven om voor
de berekening van hun minimum kapitaal, beroep te doen op interne dan wel externe ratings
op basis van het risicoprofiel. De Capital Requirement Directive (CRD) dateert van 14 juni
2006 en is een implementatie van de aanbevelingen die in de Basel akkoorden werden
gegeven in Europese Unie wetgeving. De richtlijn is gericht op de eenmaking van de interne
markt inzake financiële diensten.66
Zo zal er gestreefd worden naar een harmonisering van de
belangrijkste wetgeving inzake kredietsinstellingen.67
Gezien de centrale rol die minimum
kapitaal speelt binnen de functionering van financiële instellingen, is de harmonisering van
deze minimum vereisten van cruciaal belang. De hoeveelheid kapitaal dat een financiële
61
H. LEENAARS, “Risicomanagement van banken”, Maandblad voor Accountancy en Bedrijfseconomie 2003, 2-
8. 62
C.A. HAZEU, “De crisis, de bank en de wet”, Tijdschrift voor openbare financiën 2011, 9-11. 63
TAYTAS, F., Basel II en de gevolgen voor het management van de banken, working paper of the University of
Twente, 2008, 28p. 64
VAN ROY, P., The impact of the 1988 Basel Accord on banks’ capital ratios and credit risk taking : an
international study, working paper National Bank of Belgium, 2005, 12p. 65
H.A. BENINK, “Issues inzake Basel II”, Maandblad voor accountancy en bedrijfseconomie (MAB) 2005, 33-40. 66
DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions 67
DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions
MINIMUM KAPITAAL VEREISTEN VOOR FINANCIELE INSTELLINGEN | 14
instelling verplicht is om aan te houden zal bepaald worden in functie van het risicoprofiel
van deze instelling.68
Dit risicoprofiel is afhankelijk van de rating die aan deze entiteit werd
gegeven. Zoals eerder reeds vermeld kan een financiële instelling voor de berekening van het
minimum kapitaal zowel gebruik maken van haar eigen inschattingen om te komen tot interne
ratings, dan wel beroep doen op externe ratings, uitgegeven door erkende rating
agentschappen. Beide methodes zullen verder in de paper uitgebreid besproken worden.
5.1.1 Interne rating systeem
Wanneer men de ‘Internal rating based approach’ (IRB) van Basel II hanteert, wordt aan
financiële instellingen de mogelijkheid geboden om gebruik te maken van hun eigen interne
maatstaven en systemen voor het bepalen van een rating.69
Bij dit systeem is het de bedoeling
dat de financiële instellingen zelf het kredietrisico van de leningportefeuilles gaan berekenen
en de kapitaalhoeveelheid die ze hiervoor moeten aanhouden hiervan laten afhangen. 70
Artikel
84 van de Capital Requirement Directive bepaalt dat deze interne systemen van classificatie
die de financiële instellingen zelf zullen ontwikkelen, zullen moeten gevalideerd worden door
de toezichthouders.71
72
Enkel financiële instellingen die aan een aantal minimum voorwaarden
voldoen en die toestemming hebben gekregen van de nationale toezichthouder komen in
aanmerking voor de toepassing van het IRB systeem.73
De financiële instelling zal haar activa groeperen in verschillende subcategorieën van haar
vermogen, zoals uiteengezet in art 86 van de richtlijn en vervolgens aan elke categorie een
gewicht toekennen afhankelijk van het risico dat eraan verbonden is.74
Hierdoor wordt het
RWA “Risk Weighted Asset” gevormd dat de basis uitmaakt van de berekening. 7576
Het
verplicht aan te houden minimum kapitaal wordt vervolgens bepaald door een bepaald vast
percentage te nemen van het RWA, meestal 8%. 77
68
H. LEENAARS, “Risicomanagement van banken”, Maandblad voor Accountancy en Bedrijfseconomie 2003, 2-
8. 69
HOLMQUIST, J., Implementation of Basel II: Challenges and opportunities, Institute of International Bankers
2007, 21p. 70
stats.oecd.org 71
www.fsa.gov.uk/pubs/international/exposures.pdf 72
Art. 84 CRD 73
M. GORDY, “ A risk factor model foundation for ratings-based bank capital rules”, Journal of financial
intermediation 2003, 199-232. 74
Art 86 CRD 75
H.A. BENINK, “Issues inzake Basel II”, Maandblad voor accountancy en bedrijfseconomie (MAB) 2005, 33-
40. 76
DAS, S., SY, A., How risky are banks’ risk weighted assets? Evidence from the financial crisis, IMF working
paper Cornell University, Department of economics, 2012, 38p. 77
Art. 87 CRD
MINIMUM KAPITAAL VEREISTEN VOOR FINANCIELE INSTELLINGEN | 15
5.1.2 Externe rating systeem
De financiële instelling kan ook opteren om voor de waardering van financiële instrumenten
en transacties gebruik te maken van externe ratings, uitgegeven door externe cra’s.78
De
kredietwaardigheid en de kans op ‘default’ worden berekend en er wordt een rating code
gegeven die reikt van AAA (beste kwaliteit) tot D (zeer slechte kwaliteit, kleine kans op
terugbetaling)79
. Hiertoe voeren ze een financiële analyse 80
uit waarbij zowel actuele als
historische gegevens worden gebruikt om te bepalen hoe kredietwaardig de onderzochte
entiteit is.81
De kredietwaardig van een investering wordt bepaald door de grootte van de
rating.82
Deze methode wordt ook wel ‘Standardized approach method’ genoemd aangezien er
gewerkt wordt met standaard ratings opgesteld door de BIS, een samenwerkingsverband
genaamd ‘Bank for International Settlements’.83
78
Art 80-81 CRD 79
Waarbij in acht moet genomen worden dat de ratingschaal afhankelijk is van het credit rating agentschap dat
de ratings uitgeeft. 80
KRONWALD, C., Credit rating and the impact on corporate structure, working paper Duitsland 2009, 27p. 81
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2008, 75-
98. 82
OSTER, J., The Commission Proposal to Amend the Regulation on Credit Rating Agencies, Working paper on
recent legal developments, 2012, 6p. 83
CARPENTER, S., WHITESELL, W., ZAKRAJ, E., Capital Requirements, Business Loans, and Business Cycles: An
Empirical Analysis of the Standardized Approach in the New Basel Capital Accord , working paper of the Board
of governors of the federal reserve system, 2001, 48p.
EVOLUTIE IN DE REGULERING | 16
6 Evolutie in de regulering
Het toegenomen belang dat sinds de intreding van de Standardized approach methode werd
gegeven aan het gebruik van cra’s, heeft aanleiding gegeven tot veel discussie en een
verhoogde aandacht van de nationale toezichtsorganen. Zo is veel onderzoek gedaan naar hoe
het gebruik van zulke cra’s meer efficiënt kon gemaakt worden.84
Dit mede omwille van het
feit dat banken nu zelf kunnen bepalen op welke credit rater ze beroep zullen doen, aanleiding
geeft tot een verhoging van de impact van de eerder aangehaalde tekortkomingen waarmee
cra’s te kampen hebben.
6.1 IOSCO-gedragscode
In 2004 nam de commissie de beslissing om de regelgeving met betrekking tot cra’s strenger
te maken, dit door een gedragscode op te leggen aan rating agencies die actief zijn op het
Europese grondgebied, genaamd IOSCO gedragscode.85
Dit staat voor Internatonal
Organisation of Securities Commissons en heeft als hoofddoel credit ratings meer
waarheidsgetrouw te maken en het vertrouwen in de cra’s te verbeteren. De gedragscode legt
een aantal hooggegrepen doelstellingen op die credit agencies moeten naleven bij het
uitvoeren van de ratings om zowel potentiële investeerders te beschermen, transparantie te
verbeteren als de risico’s te verlagen.86
De gedragscode was bedoeld om het zelf-regulerend
gedrag van de credit rating agencies verder uit te bouwen en meer efficiënt te maken.87
Ook
werd het op deze manier mogelijk gemaakt om credit raters te behoeden voor perverse
incentieven en andere factoren die de analyse en de ratings op een negatieve manier kunnen
beïnvloeden.88
De gedragscode was gebaseerd op een vrijwillige naleving door de rating
agencies, waarbij de commissie de evolutie nauw in het oog hield en zich openstelde voor een
een nieuwe regelgeving wanneer zou blijken dat de vrijwillige gedragscode niet voldoende
84
A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financiel studies 2006, 11-18. 85
Code of Conduct Fundamentals for Credit Rating Agencies, The Technical Committee of the International
Organization of Securities Commissions, December 2004 86
A.SOMMER, “IOSCO, Its mission and achievement”, Northwestern Journal of International Law & Business
1996, 15-27. 87
www.iosco.org 88
STEELE, S.,SECURITIES AND EXCHANGE COMMISSION, A review of implementation of the IOSCO
code of conduct fundamentals for credit rating agencies, paper of the technical committee of the international
organization of securities commissions 2009, 17p.
EVOLUTIE IN DE REGULERING | 17
zou zijn.89
Die vrijwillige gedragscode was gekenmerkt door het ‘comply or explain’- principe
waarbij rating agencies verplicht werden om hun gedragscode publiek bekend te maken en
moesten aangeven hoe hun code de IOSOC-principes met betrekking tot cra’s implementeert.
Indien dit niet het geval was, waren de CRA’s verplicht om uit te leggen hoe en waarom hun
gedragscode afwijkt van de IOSCO – principes.90
De bedoeling was om doelstellingen op te leggen die het marktvertrouwen en de bescherming
van beleggers zou garanderen door te zorgen voor kwalitatieve ratings die niet beïnvloed
waren door perverse incentieven van de credit raters.
De functie van CRA’s moest door deze regel op verschillende niveau’s verbeterd worden.91
Een eerste aanbeveling van het IOSCO betreft de kwaliteit en integriteit van het rating
process, dit zou geïmplementeerd, geformaliseerd en vooral gehandhaafd worden om ervoor
te zorgen dat er een uitgebreide analyse plaatsvindt van de relevante informatie.92
Wanneer
een rating gegeven wordt aan de issuer, mag hierbij nooit een garantie gegeven worden dat de
bevinding een volledige weerspiegeling is van de waarheid, er moet immers op een eerlijke en
zorgvuldige manier met de contractanten worden omgegaan.93
94
Eventuele
belangenconflicten moeten vroegtijdig worden opgespoord en vervolgens zo snel mogelijk
geneutraliseerd worden. De IOSCO gedragscode moest een oplossing zijn voor de
verminderde kwaliteit van de ratings en de almaar toenemende belangenconflicten. Die
poging is achteraf echter niet efficiënt gebleken, grotendeels omwile van het gebrek aan
handhavingsmechanismen. Hierdoor is de gedragscode niet omgezet in een afdwingbare
regelgeving maar heeft ze louter dienst gedaan als richtlijn bij het genereren van interne
regels.95
Hoewel de regels niet afdwingbaar zijn, hadden ze toch tot effect dat het vertrouwen
in de rating agentschappen toenam. Dit kan verklaard worden in het licht van de reputational
capital view, die eerder in deze paper aan bod kwam.96
89
AMADOU, N., The systemic regulation of credit rating agencies and rated markets, Senegal, 2009, 36p. 90
HELLEINER, E., Global finance in crisis, the politics of international regulatory change, Canada, Routledge,
2010, 194p. 91
www.europa-nu.nl 92
A. 1.1-1.8 IOSCO code of conduct fundamentals for credit rating agencies. 93
N.E.D. FABER ,De kredietcrisis,Nederland, Kluwer, 2010, 246. 94
www.fsma.be 95
Werkdocument van de commissie bij het voorstel voor een verordening van het Europees Parlement en de
Raad inzake credit rating agencies, SEC(2008), 9. 96
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2008, 75-
98.
EVOLUTIE IN DE REGULERING | 18
6.2 Nood aan strengere regulering?
In het Resolutieplan van 2004 werd door het Europese Parlement het belang en de
verantwoordelijkheid van credit rating agentschappen aangehaald en de vraag gesteld naar de
eventuele noodzaak voor strengere regulering.97
Dit gebeurde mede naar aanleiding van het
Enron schandaal in 2001. Een onderzoek naar de mate van regulering die aan credit raters
wordt opgelegd, werd gevoerd door de committee of European Securities Regulators (CESR).
98 De Europese commissie was er echter van overtuigd dat de regulering van credit rating
agentschappen voldoende gedekt werd door enerzijds het zelfregulerende effect van de
IOSCO gedragscode en anderzijds de drie richtlijnen inzake financiële diensten, namelijk de
Market Abuse Directive99
, de Capital Requirements Directive (CRD)100
en de Markets in
Financial Instruments Directive (MiFID)101
die voortvloeien uit het Financial Services Action
Plan (FSAP) van de commissie. Hierdoor kwam de Europese commissie tot het besluit dat er
op dat moment geen nood was aan sterngere regulering inzake credit rating agentschappen.102
6.2.1 Capital Requirements Directive
De Capital Requirements Directive dateert van 14 juni 2006 en vormt een directe
implementatie van de Basel akkoorden in de Europese Unie.103
De richtlijn heeft als
doelstelling de coördinatie van kredietinstellingen overheen de verschilende lidstaten van de
Europese Unie. Zulke geharmoniseerde financiële vereisten voor kredietinstellingen laten
eerlijke competitie toe tussen entiteiten die gelijkaardige veiligheidsgaranties waarborgen.
De CRD speelt een belangrijke rol in de bankenwereld bij de regulering van de minimum
kapitaal vereisten. Deze zijn namelijk gebaseerd op het risicoprofiel van de kredietinstelling,
wat een functie is van de gegeven rating.104
Het gevaar van de verwijzing in de richtlijn naar het gebruik van externe ratings schuilt zich
in het feit dat hierdoor het vermoeden zou kunnen gewekt worden dat een uitgegeven externe
rating betrouwbaar en juist is, wat niet steeds het geval is.105
Deze hoge mate van
97
SY, A., The systemic regulation of credit rating agencies and rated markets, IMF working paper, 2009, 33p. 98
Communication from the commission on credit rating agencies (2006/C 59/ 02) 99
Market Abuse Directive (MAD 2003/6) 100
Capital Requirements Directive (CRD 2010/76/EU) 101
Markets in Financial Instruments Directive (MiFID 2004/39/EU) 102
Communication from the commission on credit rating agencies (2006/ C59/ 02) 103
Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006. 104
Art 78 en 84 CRD 105
Public consultation on credit rating agencies (05/11/2010)
EVOLUTIE IN DE REGULERING | 19
afhankelijkheid en vertrouwen in credit raters kan gemilderd worden door aan relatief grote
instellingen de verplichting op te leggen om voor de berekening van hun minimum kapitaal,
gebruik te maken van interne ratings106
of door simpelweg beroep te doen op minimum twee
verschillende cra’s.107
6.2.2 Market Abuse Directive
Verder is de commissie ervan overtuigd dat de Market Abuse Directive voldoende is om de
activiteiten van credit rating agencies vrij te stellen van enige vorm van markt misbruik. De
Market Abuse Directive dateert van 2006 en is gericht op het voorkomen van marktmisbruik
om zo de goede werking van de financiële markten overheen de Europese Unie te
garanderen.108
Zo zal de richtlijn een waarheidsgetrouwe presentatie eisen wanneer er een
aanbeveling wordt gegeven met betrekking tot een belegging. Er moet echter worden
opgemerkt dat credit ratings opinies zijn, eerder dan aanbevelingen, en dat deze verplicht
onderworpen zijn aan specifieke procedures om de waarheidsgetrouwheid ervan te
garanderen.109
Verder kan uit de richtlijn worden afgeleid dat een credit rater een daad van
markt manipulatie begaat wanneer deze een foute of misleidende rating uitgeeft waarbij hij
kennis had of behoorde te hebben van deze foutieve rating. 110
Het is echter behoorlijk
moeilijk om te achterhalen of een credit rater al dan niet te kwader trouw was bij het uitgeven
van een foutieve rating, wat de toepassing van de Market Abuse Directive op credit raters
doet wankelen.111
6.3 Europese regulering inzake credit rating agentschappen
Credit rating agentschappen zijn op heden niet meer weg te denken uit de financiële markten.
Dit grotendeels omwille van de transparantie functie die ze vervullen ten aanzien van
investeerders. 112
Ook voor de bepaling van de minimum kapitaaleis en voor allerlei
solvabiliteitsdoeleinden worden ratings gebruikt door gereguleerde entiteiten. Dit heeft tot
106
Art 84 en annex VII CRD 107
Communication from the commission on credit rating agencies (2006/ C59/ 02) 108
Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation
109 Art 1 MAD
110 Paragraaf 11 MAD
111 Art 6.5 MAD
112 A.BOOT, “Credit ratingbureaus en de stabiliteit van de financiële sector”, Maandblad voor accountancy en
Bedrijfseconomie 2008, 227-234.
EVOLUTIE IN DE REGULERING | 20
gevolg dat zulke cra’s een significante impact hebben op de functionering van de markt en op
het marktvertrouwen van consumenten en investeerders. Hierdoor is het van essentieel belang
dat credit rating agentschappen onderworpen worden aan een voldoende strenge regulering.113
Het probleem hierbij is echter dat deze agentschappen zich ook buiten de Europese Unie
bevinden en elk van hen onderworpen is aan de wetgeving die van toepassing is in dat land.114
Bijkomend is de katalyserende rol die credit raters speelden in de recente financiële crisis van
2007 115
waarbij deze credit rating agentschappen er niet in slaagden om de veranderende
economische realiteit en verslechterende marktcondities weer te geven in hun ratings. 116
117
Als antwoord hierop kwam ‘Regulation 1060/2009 on credit rating agencies’ tot stand,118
een
geharmoniseerde regelgeving op Europees niveau inzake de werking van credit rating
agentschappen.119
Hierdoor voorkomt men het risico dat de interne markt verstoord wordt
doordat de lidstaten verschillende nationale regelgevingen hebben, wat leidt tot verschillende
niveaus van investeerders- en consumenten bescherming. 120
De verordening is tot stand
gekomen op 1 september 2009 en vond haar uitwerking op 7 december 2010. 121
De bedoeling was om te zorgen dat credit ratings die in de Europese Unie gebruikt werden,
onafhankelijk, objectief en kwalitatief waren door meer transparantie te creëren en door het
wegwerken van de bestaande conflicten. Voorheen vernoemde problemen die credit raters
veroorzaakten, tonen aan dat de toen bestaande Europese regulering, namelijk de IOSCO
code, MAD en CRD, die enkel in gelimiteerde gebieden van toepassing waren op cras’s, niet
voldoende waren om de stabiliteit van de financiële markten te garanderen.122
De regulering
stelt dat cra’s die credit ratings uitgeven in de Europese Unie, zich moeten registreren bij de
autoriteit van de lidstaat waarin ze actief zijn.123
Verder wordt aan gereguleerde entiteiten, als
113
J.OSTER, ‘“Who Rates the Raters? The Regulation of Credit Rating Agencies in the EU”, The economist
2010, 353–76. 114
UTZIG, F., The financial crisis and the regulation of credit rating agencies: A European banking perspective,
working paper Asian Development Bank Institute 2010, 26p. 115
M.MULLARD, “The credit rating agencies and their contribution to the financial crisis”, The policical
quarterly 2012, 77-95. 116
A.BOOT, “Credit ratingbureaus en de stabiliteit van de financiële sector”, Maandblad voor accountancy en
Bedrijfseconomie 2008, 227-234. 117
BAHENA, A., What role did credit rating agencies play in the credit crisis?, University of Iowa, Center for
international Finance and Development 2010, 21p. 118
Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on
credit rating agencies 119
Paragraph 9 Regulation N° 1060/2009 on credit rating agencies 120
Paragraph 11 Regulation N° 1060/2009 on credit rating agencies 121
Art 41 Regulation N° 1060/2009 on credit rating agencies 122
Paragraph 2 Regulation N° 1060/2009 on credit rating agencies 123
Paragraph 43 Regulation N° 1060/2009 on credit rating agencies
EVOLUTIE IN DE REGULERING | 21
kredietinstellingen, investerings- en verzekeringsondernemingen etc., de verplichting
opgelegd om voor regelgevende doeleinden, enkel gebruik te maken van credit ratings die
uitgegeven werden door Europese credit rating agentschappen. Dit zijn agentschappen die
zowel geregistreerd zijn als hun hoofdzetel hebben binnen de Europese Unie.124
De
voornaamste doelstelling van de regulering is om de kwaliteit van de credit ratings te
verbeteren door potentiële conflicten te voorkomen.125
Verder in de paper zullen de
opgestelde maatregelen besproken worden en zal toegelicht worden hoe ze elk bijdragen aan
het voorkomen van de, in deze paper reeds vernoemde, conflicten.
A. gebrekkige ratingmethoden
Zoals eerder reeds vermeld, zorgde de oligopoliepositie van cra’s ervoor dat deze vaak niet
inspeelden op veranderende marktsituaties door hun modellen en methodes niet aan te passen,
wat aanleiding gaf tot vertekende ratings. De Europese regulering tracht hieraan tegemoet te
komen door de verplichting op te leggen om methodes te gebruiken die objectief en
systematisch waren en die de mogelijkheid gaven om gevalideerd te worden.126
Verder zal de
cra alle relevante informatie met betrekking tot de gebruikte modellen en methodes om tot de
ratings te komen, verplicht moeten bekend maken aan het publiek. Hierdoor wordt het voor de
gebruiker van de rating mogelijk gemaakt om een eigen analyse te voeren inzake de
betrouwbaarheid van de credit rater.127
Ook intern zal het credit rating agentschap regels en procedures moeten voorzien die de
kwaliteit van de ratings garanderen door, onder anderen, controle mechanismes op te leggen
aan haar medewerkers en personen die mee helpen bij het tot stand komen van de ratings.128
B. Exclusiviteit van de ratingagentschappen
Aan de beperkte mate van concurrentie op de ratingmarkt, wat leidt tot een hoge mate van
afhankelijkheid van de credit raters, tracht de regulering tegemoet te komen door ervoor te
zorgen dat de gebruikers van de ratings, zich er niet blindelings op vertrouwen maar eerder
124
P. STAIKURAS, “A theoretical and empirical review of the EU regulation on credit rating agencies: In search
of truth, not scapegoats”, Financial markets, institutions and instruments 2012, 71- 155. 125
Paragraph 11 Regulation N° 1060/2009 on credit rating agencies 126
Paragraph 22 Regulation N°1060/ 2009 on credit rating agencies 127
Art 2 Regulation N°1060/ 2009 on credit rating agencies 128
Paragraph 26 Regulation N°1060/ 2009 on credit rating agencies
EVOLUTIE IN DE REGULERING | 22
overgaan op een eigen analyse om de betrouwbaarheid van de credit rater in te schatten.129
Een eerste poging om deze doelstelling te bereiken, is te vinden in de verplichting die eerder
reeds besproken werd, waarbij de credit rater informatie met betrekking tot de gebruikte
methodes en modellen moet bekend maken aan het publiek. Deze laatste kan op die manier
haar eigen ‘due diligence’ voeren om zo te bepalen of ze al dan niet gebruik zal maken van
een bepaalde rating in plaats van er zonder evaluatie op te vertrouwen.130
Verder zal de
Europese toezichtshouder, de CESR een centrale database bijhouden waarin informatie te
vinden is inzake de historische performantie van elke credit rater, die beschikbaar gemaakt
wordt aan het publiek.131
Op deze manier beschikt de potentiële investeerder over voldoende
informatie om te komen tot een persoonlijke beoordeling van de credit rater en wordt
voorkomen dat deze zijn investering blindelings zal afstemmen op de uitgegeven rating.
C. Gebrek aan onafhankelijkheid van de credit rater
Het feit dat de onderneming die gerate wordt, eveneens degene is die de credit rater betaalt
voor het uitgeven van de ratings, geeft vaak aanleiding tot een grote mate van afhankelijkheid
van elkaar. 132
Zo zal de emittent afhankelijk zijn van de credit rater voor het verkrijgen van
goede ratings en zal de credit rater voor het bekomen van premies, afhankelijk zijn van de
emittent.133
Een mogelijke oplossing hiervoor wordt door de regulering geboden door aan
credit raters de verplichting op te leggen om elke mogelijke situatie waarbij de
onafhankelijkheid in het gevaar komt, te registreren en bekend te maken bij het publiek.134
De
onafhankelijkheid van de credit rater zal verder gegarandeerd worden door te zorgen voor de
onafhankelijkheid van ten minste een derde, maar niet minder dan twee van de leden van de
administratieve- of toezichthoudende vergadering. 135
Omdat een lange termijn verhouding tussen eenzelfde credit rater en een entiteit die gerate
moet worden, de onafhankelijkheid van de credit rater in het gevaar zou kunnen brengen,
heeft de regulering voorzien in een rotatie principe waarbij er een graduele verandering zal
plaatsvinden binnen de verschillende analytische teams. Deze graduele verandering houdt in
129
Art 10 Regulation N°1060/ 2009 on credit rating agencies 130
Paragraph 25 Regulation N°1060/ 2009 on credit rating agencies 131
A. DUFF, S. EINIG, “Credit ratings quality: the perceptions of market participants and other interested parties”,
The British accounting review 2009, 141- 153. 132
A. BOOT, “De toegevoegde waarde van credit ratings”, the review of financial studies 2006, 1-18. 133
R. KUDPA, “issuer-pays model ensures ratings are available to the entire market”, The economic times
2010,6-8. 134
Paragraph 27 Regulation N°1060/2009 on credit rating agencies 135
Paragraph 29 point 13 section III commission recommendation 2005/162/EC on the role of non-executive or
supervisory directors of listed companies
EVOLUTIE IN DE REGULERING | 23
dat de samenstelling van een team continu zal aangepast worden, waardoor de individuen
moeten verwisselen van team om er zo voor te zorgen dat een entiteit gedurende een lange
termijn zal gerate worden door een team dat qua samenstelling exact hetzelfde is.136
D. Geen civielrechtelijke aansprakelijkheid
De aansprakelijkheidsmogelijkheden van credit raters zijn in de praktijk zeer beperkt
waardoor deze weinig of geen incentives hebben om de betrouwbaarheid van informatie na te
gaan die ze gebruiken bij het berekenen van een rating. 137
De regulering biedt de
mogelijkheid om credit raters aansprakelijk te stellen wanneer deze, of een derde betrokken
partij informatie gebruikt waarvan deze weet of behoorde te weten dat ze foutief of
misleidend was. Hierdoor kan van de credit rater afgedwongen worden dat deze enkel gebruik
maakt van betrouwbare informatie voor het komen tot een rating.138
Het toezicht over de credit raters en het afdwingen van de Europese regulering inzake credit
rating agentschappen werd gedaan door de competente autoriteiten van de lidstaat waarin de
credit rater is gevestigd. Mechanismes om de goede naleving van de regulering te garanderen,
werden dan ook uitgewerkt per lidstaat en vielen onder de bevoegdheid van de competente
autoriteit van die lidstaat. Deze kon indien nodig een sanctie bepalen die proportioneel was
met de schending van een bepaling van de regulering.139
De Verordening inzake credit rating bureaus is op 1 juni 2011 gewijzigd en de Verordening
(EU) nr. 513/2011 is hiermee in werking getreden.140
Hierdoor werd aan de Europese
Autoriteit voor effecten en markten (ESMA) de exclusieve toezichtbevoegdheden gegeven
inzake geregistreerde cra’s. 141
Op deze manier kan het hele toezicht- en registratieproces
vereenvoudigd en gecentraliseerd worden overheen de Europese Unie.142
De algemene
doelstelling hierbij was echter nog steeds om de risico’s op financiële instabiliteit te
verminderen en het vertrouwen van investeerders te verbeteren door meer kwalitatieve ratings
te garanderen.
136
Art 7 N°1060/2009 on credit rating agencies 137
T. BRUYNINCKX, “Rating agencies: inhoud, regelementering en aansprakelijkheid”, Jura Falconis 2007, 75-
98. 138
Paragraph 35 Regulation N°1060/2009 on credit rating agencies 139
Paragraph 58 Regulation N°1060/2009 on credit rating agencies 140
Eur-lex.europa.eu 141
Paragraph 6 Regulation N° 513/2011 on credit rating agencies 142
Regulation (EU) N° 513/2011 of 11 May 2011amending Regulation (EC) N° 1060/2009 on credit rating
agencies
EVOLUTIE IN DE REGULERING | 24
6.4 Voorstel tot vernieuwde Europese verordening
In oktober 2011 kwam de Europese Commissie tot het besluit dat de voorgaande Europese
regulering inzake credit rating agencies tekortkomingen vertoonde en hierdoor niet volledig
kon tegemoet komen aan de heersende conflicten.143
De ruime overschatting van het
kredietrisico in Europa, de heersende oligopolische vorm van de drie grote cra’s en het gebrek
aan aansprakelijkheid hebben bijgedragen tot het besluit dat er nood was aan een
gespecifieerde herziening van de bestaande regulering.144
Hierdoor is op 15 oktober 2011 het
voorstel tot vernieuwing van de regulering tot stand gekomen.145
De doelstelling van het voorstel is om op een efficiëntere manier tegemoet te komen aan de
tekortkomingen met betrekking tot cra’s door het invoeren van meer strikte maatregelen,
gebaseerd op adviezen van aandeelhouders die gedurende 5 november 2010 tot 7 januari 2011
tot uiting zijn gekomen in een publieke consultatie.146
Het afdwingen van de nieuwe
regulering, de controle en bestraffing, zullen gebeuren op unie niveau, in overeenstemming
met de principes van subsidiariteit. 147
De invulling van deze maatregelen en de manier waarop
ze bijdragen tot een vermindering van de potentiële conflicten, zullen verder in de paper
uitgebreid aan bod komen.
Aan het probleem van de gebrekkige rating methoden zal in het voorstel op een verbeterde
manier trachten tegemoet gekomen te worden door de regels inzake het publiek kenbaar
maken van de methodes te verstrengen. Zo zal er een verplichting opgelegd worden waarbij
de credit rater het advies van de aandeelhouders moet raadplegen bij het vormen van nieuwe
of het aanpassen van reeds bestaande methodes.148
De grote mate van afhankelijkheid van een credit rater wordt in het voorstel behandeld door
aan financiële instellingen de verplichting op de leggen om hun eigen krediet risico analyse te
voeren. Over de manier waarop deze analyse zal gebeuren, zal vervolgens toezicht gehouden
worden door een competente autoriteit van de lidstaat waarin de rater actief is.149
Een andere
maatregel die hetzelfde doel nastreeft, is te vinden in het voorstel om een issuer te verplichten
wanneer hij een rating aanvraagt, beroep te doen op twee credit rating agentschappen die
143
F. AMTENBRINK and J. DE HAAN, “Regulating Credit Rating Agencies in the European Union: A Critical
First Assessment of Regulation 1060/2009 on Credit Rating Agencies”, Common market law review
2009,1915–49. 144
J. BRUNSDEN, “EU proposes tougher regulation for credit rating companies”, Bloomberg Business week
2011,2-8. 145
Regulation N° 2011/0361 amending regulation N°1060/2009 on credit rating agencies 146
De consulatie is te vinden op: http://ec.europa.eu/internal_market/consultations/2010/cra_en.htm. 147
Art 5 proposal N° 2011/ 0361 148
Art 8(5a), 8(6)(aa), 22a(3) proposal N°2011/0361 149
Art 5a proposal N° 2011/ 0361
EVOLUTIE IN DE REGULERING | 25
onafhankelijk van elkaar opereren om zo tot een objectiever resultaat te komen.150
Verder zal
het voorstel een verbetering van het rotatiesysteem inhouden door over te stappen op een
agentschap gerichte verandering in plaats van een persoons gerichte verandering, zoals deze
bestond in de voorgaande regulering. Meer concreet bestaat het systeem erin dat een credit
rater nooit meer dan drie jaar credit ratings mag uitgeven voor eenzelfde issuer. 151
Waar de voorgaande regulering de onafhankelijkheid van credit raters vooral trachtte te
behandelen op het niveau van het agentschap zelf, zal het voorstel tot een nieuwe regulering
eveneens gericht zijn op de onafhankelijkheid van betrokken personen, zoals de
aandeelhouders van het agentschap. Van deze zal verlangd worden dat wanneer zij 5% of
meer aanhouden in een agentschap, zij het verbod opgelegd krijgen om meer dan 5% aan te
houden in een ander credit rating agentschap. Ook zal een credit rater een verbod opgelegd
krijgen om een rating uit te geven wanneer een persoon betrokken bij het rating proces 10%
of meer van de stemrechten in dat agentschap bezit en eveneens een lid is van de
administratieve- of toezichthoudende vergadering van de onderneming die een rating
ontvangt.152
Waar de voorgaande regulering weinig bijbracht aan het probleem van gebrek aan competitie
op de ratingmarkt, zal het voorstel een meer gerichte aanpak inhouden om concurrentie te
stimuleren. Dit mede omwille van de grote impact van dit probleem. 153
Zo zullen de
voorgaande maatregelen om onafhankelijkheid te verbeteren nutteloos zijn wanneer er
onvoldoende keuze is om over te schakelen op een andere credit rater. Een voorstel tot
verbetering van de competitie bestaat erin een European Rating Index (EURIX) te creëren,
waarin de ESMA elke uitgegeven rating door een geregistreerd agentschap zal publiceren en
waartoe een investeerder toegang heeft.154
De ratings verschijnen hierdoor in een
gestandardiseerde vorm, waardoor de onderlinge vergelijkbaarheid toeneemt, wat in het
voordeel is van de investeerder. 155
Verder zal het reeds besproken rotatiesysteem een gunstig
effect hebben op de toetredingsmogelijkheden van de rating markt door aan opstartende
agentschappen de mogelijkheid te bieden om uit te breiden in verschillende gebieden in de
markt. 156
150
Art 8b proposal N° 2011/0361 151
Art 6b proposal N° 2011/ 0361 152
Paragraph 13 proposal N° 2011/ 0361 153
H. LANGOHR ,P. LANGOHR, The rating agencies and their credit ratings: What they are, how they work and
why they are relevant, England, John Wiley and sons, 2010, 524. 154
www.finance-watch.org 155
Paragraph 23 proposal 2011/0361 156
Paragraph 7 proposal 2011/ 0361
EVOLUTIE IN DE REGULERING | 26
Ook het feit dat issuers verplicht worden om een minimum aan informatie met betrekking tot
hun financiële instrumenten bekend te maken, zal op positieve wijze bijdragen tot het creëren
van competitie doordat de investeerder op deze manier makkelijker kan komen tot een eigen
onderzoek over de de kredietwaardigheid van een financieel instrument. De link tussen deze
publieke informatie en de verhoogde mate van competitie kan gesitueerd worden in het feit
dat het vrijgeven van informatie met betrekking tot financiële instrumenten, de mogelijkheid
om ongesolliciteerde ratings uit te geven verhoogt.
Ook de mogelijkheid tot civielrechtelijke aansprakelijkheid van credit raters zal in het
voorstel behandeld en geoptimaliseerd worden. Dit is een belangrijk punt aangezien het de
enige manier is waarop de investeerder van de credit rater kan afdwingen dat deze ratings
uitgeeft die in overeenstemming zijn met de regels uit regulering 1060/2009 inzake credit
rating agentschappen. Dit zou een grote stap vooruit betekenen, aangezien er tussen de
investeerder en de credit rater meestal geen contractuele relatie zal bestaan en deze dus onder
het heersend aansprakelijkheidsrecht, deze laatste enkel aansprakelijk kan stellen op basis van
artikel 1382 BW, buitencontractuele aansprakelijkheid, in geval van samenloop.157
Het
voorstel houdt in dat wanneer een rating wordt uitgegeven die in strijd is met regulering
1060/2009 en een investeerder heeft zich op deze rating gebaseerd bij het maken van een
investeringsbeslissing, deze investeerder de credit rater aansprakelijk kan stellen voor de
schade die hieruit is voortgekomen.158
Van aansprakelijkheid is enkel spraken in het geval
waar de inbreuk op de regulering een effect had op de berekening en het resultaat van de
rating en de schade dus een rechtstreeks gevolg is van die vertekende rating. Het voorstel
komt gedeeltelijk tegemoet aan het leveren van het moeilijke bewijs hiervan door een
gedeeltelijke omkering van de bewijslast in te lassen inzake het bewijs van het bestaan en de
impact van een inbreuk op de regulering. Dit omdat de investeerder vaak minder kennis heeft
over de gebruikte procedures en methodes van de credit rater en het voor hem dus aanzienlijk
zwaarder is om dit bewijs te leveren.
Het bewijs inzake de veroorzaakte schade en het oorzakelijke verband, blijven echter liggen
bij de investeerder.159
157
Art 1382 BW 158
Paragraph 24-27 proposal 2011/0361 159
Art 35a proposal 2011/0361
EVOLUTIE IN DE REGULERING | 27
Het voorgaande voorstel tot regulering van credit rating agentschappen zal geïmplementeerd
worden, na volledige goedkeuring van Parlement en overheden en na publicatie in ‘The
Official Journal of the European Union’.160
160
Art 2 proposal 2011/0361
BESLUIT | 28
7 Besluit
De rol die cra’s spelen in de financiële wereld, is niet beperkt tot het wegnemen van
informatieassymetrie tussen belegger en uitgever, maar reikt zich uit tot het mede bepalen van
de minimum kapitaaleis waaraan financiële instellingen moeten voldoen. Deze minimum
kapitaaleis is een elementair aspect bij het toezicht op banken, wat maakt dat cra’s eveneens
een aanzienlijke effect kunnen hebben op de stabiliteit van financiële markten. De recente
financiële crisis bracht aan het licht dat het gebruik van cra’s gepaard gaat met allerlei
belangenconflicten, wat kan leiden tot een vertekend beeld van de economische realiteit. Uit
het verleden is gebleken dat de regulering van cra’s onvoldoende was om aan deze
tekortkomingen tegemoet te komen waardoor de Europese Unie pogingen heeft ondernomen
om de wetgeving met betrekking tot cra’s te harmoniseren overheen de verschillende
lidstaten. Belangenverstrengeling, gebrek aan transparantie en allerlei mogelijke anti-
competitieve gedragingen blijven echter uiterst sterk geassocieerd met credit rating
agentschappen. De financiële wereld is een verweven en complex gebeuren waardoor er geen
eenduidige of allesomvattende oplossing is om tegemoet te komen aan voorvernoemde
problemen. Meerdere maatregelen moeten hierbij in acht genomen worden, waarbij het
wegwerken van toetredingsbarrières een cruciaal element is. Zo zal het mogelijk gemaakt
worden om verhoogde competitie te genereren waardoor, via het marktmechanisme, een
systeem van zelfregulatie kan ontstaan. In de economische thesis zal dan ook onderzoek
gedaan worden naar het effect van verhoogde competitie op de kwaliteit van de credit ratings.
BIBLIOGRAFIE | 29
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Overkoepelend besluit
In mijn master thesis wordt een kritische analyse gedaan van de rol die credit rating
agentschappen spelen in de economische wereld en de manier waarop ze informatie
verschaffen. Het feit dat credit raters enerzijds voor hun diensten betaald worden door de
aanvragers van deze diensten zelf, namelijk de issuers, en het beperkt aantal spelers in de
ratingmarkt anderzijds, geeft aanleiding tot heel wat belangen conflicten. Als antwoord hierop
zijn in Europa strenge reguleringen ontstaan inzake het beleid en toezicht op cra’s en zijn
zelfs nieuwe wetsvoorstellen reeds in aanmaak. Hierbij moet echter de vraag gesteld worden
of deze recente wetsvoorstellen een effectieve oplossing kunnen bieden voor de problemen
die gepaard gaan met credit ratings. Zo zou het namelijk kunnen dat we afstevenen op een
situatie van overregulatie waarbij het net de complexiteit van de regulering is die aanleiding
geeft tot problemen. Een systeem van zelfregulering, dat via het marktmechanisme mogelijk
gemaakt wordt, kan een alternatief bieden. De ‘reputational capital view’ benadering gaat er
van uit dat credit raters in voldoende mate zelfregulerend functioneren doordat ze streven naar
een goede reputatie. Om zulke reputatie te bereiken, is het belangrijk dat de credit ratings
betrouwbaar en waardevol zijn, waardoor de credit rater het vertrouwen van de issuer voor
zich kan winnen. In de economische paper zijn we echter tot de conclusie gekomen dat deze
benadering niet steeds consistent is en geen verklaring kan bieden voor bepaalde
marktgedragingen. Zo zal het belang van een goede reputatie afnemen naarmate er meer
spelers op de markt zijn en verhoogde competitie mogelijk gemaakt wordt. Dit kan verklaard
worden door het feit dat in een situatie van toegenomen competitie, de verwachte toekomstige
inkomsten zullen afnemen doordat de totale winst moet gedeeld worden over een groter aantal
spelers. Ter compensatie zullen de rating agentschappen opteren om meer inkomsten op korte
termijn te genereren door ratings uit te geven die gunstig zijn voor de issuer.
Deze theorie werd in onze economische thesis getoetst door een reeks testen op te stellen die
nagaan wat het effect is van verhoogde competitie op de kwaliteit van credit ratings. De
resultaten hiervan zijn in lijn met de bestaande literatuur. Ze tonen aan dat verhoogde
competitie, wat in het economisch model overeenstemt met de toetreding van Fitch, een
significant negatieve impact heeft op de kwaliteit van credit ratings. Het niveau van de ratings
zal stijgen, uitsluitend als gevolg van een verhoogd aantal concurrenten in de markt, en de
voorspellingskracht ten aanzien van een toekomstige ‘default’ zal afnemen. Deze resultaten
zijn echter gedeeltelijk in strijd met de recente wetsvoorstellen inzake credit rating agencies.
Zo bevat het Europese voorstel van 15 oktober 2011 voor een nieuwe cra regulering een aanal
maatregelen om de competitie in de rating markt te verhogen.
Meer spelers in de rating markt geeft aanleiding tot een daling van het belang dat credit raters
hechten aan een goede reputatie, waardoor de kwaliteit van de credit ratings zal afnemen.
Belangrijk hierbij is echter te weten dat verhoogde competitie ook voordelen met zich
meebrengt. Zo zal er meer informatie beschikbaar zijn op de markt, waardoor investeerders
een bredere keuze hebben en het mogelijk gemaakt wordt om ratings van verschillende
agentschappen te vergelijken.