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Friday, 5 June 2015

Credit Rating Agencies

Top Credit Rating Agencies (CRAs) have never done better. Their revenues and profits are up - way above levels seen before the crisis. This picture from The Economist shows that their market shares haven't moved a notch after the financial crisis when "aggressive" regulation was introduced to curb CRAs powerful influence on markets. What is ironic, is that this increased monopoly power largely originates from the very regulation that was supposed to introduce more competition in the sector, thereby - as was hoped - also providing more discipline in ratings. None of this happened. Why? The detailes can be read here. The bottom line is that regulation made it so hard to comply with the law that would-be competitors decided never to enter the market. Meanwhile the established agencies with established large market shares could easily amortize the additional fixed costs of compliance. A classic case of bad regulation.....


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