The Independence of Credit Rating Agencies

How Business Models and Regulators Interact


  • Gianluca Mattarocci, Universita degli Studi di Roma "Tor Vergata"

The Independence of Credit Rating Agencies focuses on the institutional and regulatory dynamics of these agencies, asking whether their business models give them enough independence to make viable judgments without risking their own profitability.

Few have closely examined the analytical methods of credit rating agencies, even though their decisions can move markets, open or close the doors to capital, and bring down governments. The 2008 financial crisis highlighted their importance and their shortcomings, especially when they misjudged the structured financial products that precipitated the collapse of Bear Stearns and other companies.

This book examines the roles played by rating agencies during the financial crisis, illuminating the differences between U.S. and European rating markets, and also considers subjects such as the history of rating agencies and the roles played by smaller agencies to present a well-rounded portrait.

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Upper-division undergraduates and graduate students worldwide studying financial institutions, mergers & acquisitions, international finance, and money & banking. Professionals worldwide working in these areas.


Book information

  • Published: November 2013
  • ISBN: 978-0-12-404569-9


"This book provides a detail exposition of credit rating agency industry with a global emphasis. The coverage of non-US credit agencies and their respective markets is excellent." --Kam C. Chan, Western Kentucky University

"Mattarocci's interesting monograph provides new insights into the workings of the ratings industry by exploring the agencies' business models, organisational structures and, most importantly, their independence." --Sandra Einig, Oxford Brookes University

"Rating agencies play an important role in modern finance. Mattarocci is the first to provide a comprehensive overview of the business model of rating agencies. This knowledge is crucial in understanding the recent financial crisis as well as the current regulatory regime." --Peter Posch, University of Ulm

Table of Contents


1. Rating agencies and the rating service

1.1 Introduction

1.2 The rating service

1.2.1 Issuer rating

1.2.2 Issue rating

1.2.3 Solicited ratings

1.2.4 Unsolicited ratings

1.3 Rating users

1.3.1 Financial investors

1.3.2 Financial intermediaries

1.4 Conclusions

2. Rating and financial markets

2.1 Introduction

2.2 The impact of new rating on issuers and issues

2.3 The impact of rating changes on issuers and issues

2.4 Multi rating and split rating

2.5 Regulation on the rating sector

2.6 The great financial crisis and the role of rating agencies

2.6.1 Rating failures during the crisis

2.6.2 Rating actions and the impact on the market

2.6.3 The perspectives of the new regulation

2.7 Conclusions

3. The rating market

3.1 Introduction

3.2 History of the rating industry

3.3 Entry barriers for the new-comers

3.4 The competition in the rating market

3.5 Conclusions

4. Economic and financial equilibrium of rating agencies

4.1 Introduction

4.2 Balance sheet

4.3 Income statement

4.4 Cash flow statement

4.5 Conclusions

5. Rating agencies’ pricing policies

5.1 Introduction

5.2 Pricing policies for information providers and rating agencies

5.3 Rating agency fees

5.4 Issuer and user fee models

5.4.1 User-fee model

5.4.2 Issuer fee model

5.4.3 Rating agency choices and their implications for the business models

5.5 Conclusions

6. Organizational structure and rating agency independence

6.1 Introduction

6.2 Ethical codes

6.3 Information flows and monitoring methods

6.4 Legal status and ownership concentration

6.5 Group affiliation and cross selling

6.6 Public intervention

6.7 Conclusions

7. The economic independence of rating agencies

7.1 Introduction

7.2 Customer relationships for rating agencies

7.3 Measuring economic independence of rating agencies

7.3.1 Measures for evaluating the role of each customer

7.3.2 Customer portfolio concentration measures

7.3.3 The supervisory approach

7.4 The role of the concentration measure choice in measuring rating agencies’ customer portfolios: An application to the main international rating agencies

7.4.1 Sample

7.4.2 Methodology

7.4.3 Comparison of the different approaches under the hypothesis of equal fees

7.4.4 Comparison of different approaches under the hypothesis of different fees

7.5. Conclusions