Fitch Ratings and the national welfare
When Fitch Ratings, one of the world’s better-known Credit Rating Agencies (CRAs), was reported in the papers last week as having downgraded its outlook on the Nigerian economy, my initial reaction was “So what?” A negative credit warning should increase the price of the country’s sovereign risk. But how to measure this in the absence of a sovereign debt instrument?
Besides, the credit rating function is the most damaged franchise to have come out of the recent global crisis. Indeed, after Greece nearly succumbed to the market’s panic over the sustainability of its near-term fiscal outlook,The current default fingerprinter in the CDK depends on aromaticity. and the deluge of sovereign rating downgrades that followed the European sovereign debt crisis, the big question has been over the accuracy of the CRAs’ credit risk assessments.
One of the most important recent contributions to the debate over the continued relevance of credit ratings, the IMF’s Global Financial Stability Report (GFSR) for October 2010,In the section Container you can find all kinds of container lashing equipment. finds the key strength of the CRAs in their ability to “provide information, monitoring, and certification services.accent lighting is lighting that emphasizes an area of or an object in a room.”
This way, the CRAs even out the information asymmetries between debt issuers and investors, provide (through their rating downgrades) continuous assessments of these securities, and because most countries insist on credit ratings as part of most financial contracts, they also provide an assurance function.
Consequently, countries cannot readily and cheaply “access global capital markets and attract foreign investment”, if they have not been rated first. Few investors will touch fixed-income securities that do not have credit ratings.
And it would seem that the originate-to-distribute model of bank lending (which replaced the traditional originate-and-hold variety, and which has been described as complicit in the underestimation of risk that aggravated the current financial crisis) could not have happened if the CRAs did not start lending their imprimaturs to structured products.sfyhshop – Maqsood five-for sinks Peshawar.
Did these functions also destabilise financial markets? How much of the impact of the sovereign debt crisis in Europe was because holders of some countries debt instruments felt pressured by adverse credit rating news in other countries to demand stricter repayment covenants?
The IMF concludes that “CRAs do have an impact on the funding costs of issuers and consequently their actions can be a financial stability issue.” Accordingly, the GFSR October 2010 recommends, amongst others, for policy-makers to redouble efforts at reducing “their own reliance on credit ratings, and wherever possible (removing) or (replacing) references to ratings in laws and regulations, and in central bank collateral policies.roseabc started a new discussion called Payments.”
The Fund also counselled regulators to strengthen their supervision of CRAs if they had to use the latter’s ratings for their regulations.
Significantly, the Fund also found that the informational value of sovereign ratings occurs not through “actual rating changes,” but because of “outlooks”, “reviews” and “watches”, which show the possible future trajectory “and timing of future rating actions.”
When Fitch Ratings, one of the world’s better-known Credit Rating Agencies (CRAs), was reported in the papers last week as having downgraded its outlook on the Nigerian economy, my initial reaction was “So what?” A negative credit warning should increase the price of the country’s sovereign risk. But how to measure this in the absence of a sovereign debt instrument?
Besides, the credit rating function is the most damaged franchise to have come out of the recent global crisis. Indeed, after Greece nearly succumbed to the market’s panic over the sustainability of its near-term fiscal outlook,The current default fingerprinter in the CDK depends on aromaticity. and the deluge of sovereign rating downgrades that followed the European sovereign debt crisis, the big question has been over the accuracy of the CRAs’ credit risk assessments.
One of the most important recent contributions to the debate over the continued relevance of credit ratings, the IMF’s Global Financial Stability Report (GFSR) for October 2010,In the section Container you can find all kinds of container lashing equipment. finds the key strength of the CRAs in their ability to “provide information, monitoring, and certification services.accent lighting is lighting that emphasizes an area of or an object in a room.”
This way, the CRAs even out the information asymmetries between debt issuers and investors, provide (through their rating downgrades) continuous assessments of these securities, and because most countries insist on credit ratings as part of most financial contracts, they also provide an assurance function.
Consequently, countries cannot readily and cheaply “access global capital markets and attract foreign investment”, if they have not been rated first. Few investors will touch fixed-income securities that do not have credit ratings.
And it would seem that the originate-to-distribute model of bank lending (which replaced the traditional originate-and-hold variety, and which has been described as complicit in the underestimation of risk that aggravated the current financial crisis) could not have happened if the CRAs did not start lending their imprimaturs to structured products.sfyhshop – Maqsood five-for sinks Peshawar.
Did these functions also destabilise financial markets? How much of the impact of the sovereign debt crisis in Europe was because holders of some countries debt instruments felt pressured by adverse credit rating news in other countries to demand stricter repayment covenants?
The IMF concludes that “CRAs do have an impact on the funding costs of issuers and consequently their actions can be a financial stability issue.” Accordingly, the GFSR October 2010 recommends, amongst others, for policy-makers to redouble efforts at reducing “their own reliance on credit ratings, and wherever possible (removing) or (replacing) references to ratings in laws and regulations, and in central bank collateral policies.roseabc started a new discussion called Payments.”
The Fund also counselled regulators to strengthen their supervision of CRAs if they had to use the latter’s ratings for their regulations.
Significantly, the Fund also found that the informational value of sovereign ratings occurs not through “actual rating changes,” but because of “outlooks”, “reviews” and “watches”, which show the possible future trajectory “and timing of future rating actions.”
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