Rating agencies and the fallout of the 2007-2008 financial crisis Petra Lieven, Supervisor: Ahmet aker

Yazar: Katkıda bulunan(lar):Dil: İngilizce Yayın ayrıntıları:Nicosia Cyprus international university 2014Tanım: X, 321p table, figure, graph 30 cmİçerik türü:
  • text
Ortam türü:
  • unmediated
Taşıyıcı türü:
  • volume
Konu(lar):
Eksik içerik
1 INTRODUCTION
8 WHAT CAUSED THE ECONOMIC AND FINANCIAL CRISIS 2007-2008
9 BACKGROUND
11 FINANCIAL MARKET TURMOIL 2007-2008
13 MBS Corrections and the Securitization Business
14 Rating Agencies
15 Global Markets Contagion
18 CONCLUSION
20 THE CRISIS 2007-2008
21 ON THE ROLE OF THE RATING AGENCIES
22 RATING AGENCIES' ROLE IN STRUCTURED FINANCE
26 MAIN POINTS OF CRITICISM LEVELED AT RATING AGENCIES
26 Conflicts of interest in Rating Agencies' Business Model
30 Lack of Competition
31 Liability Rating Agencies
35 Lack of Transparency in the Rating Process
36 Deficiencies in the Rating Process
45 Quasi-Regulatory Role of Rating Agencies
46 CONCLUSİON
49 THE RATING AGENCIES' DEFENSE- A CRITICAL REVIEW
49 THE ROLE OF CAPITAL AGENCIES AND THEİR RATING IN THE CAPITAL MARKETS
51 MANAGING CONFLICTS OF INTEREST
51 Rating Agencies Business Model
56 Individual Conflicts of Interest
57 Rating Shopping
59 COMPETITION AMONGST RATING AGENCIES
62 LIABILITY
65 TRANSPARENCY IN THE RATING PROCESS
66 PERCEIVED WEAKNESS IN THE RATING PROCESS
75 REGULATORY ROLE OF RATING AGENCIES
77 CONCLUSIONS
82 THE RATING PROCESS
83 RATING SYMBOLS,DEFINITIONS AND THE "SF" MODIFIER
85 CREATION OF STRUCTURED FINANCE INSTRUMENTS
88 How Rating Agencies Conduct the Rating Process for Structured Finance Instrument
91 Request for Rating
92 Pre-Analysis
92 Proceeding of the Rating Process
93 The Committee Process and Communication
95 Assigning the Final Rating
95 AREAS OF ANALYSIS
96 Analyzing the Financial Structure of the Transaction
100 Initial Evaluation
100 Cash Flow Analysis
104 Synthetic Transactions
107 Assessing Operational and Administrative Risks
108 Analysis of Counterparty Risks
109 Legal and Transaction Document Risks in Structured Finance Transactions
110 RATING ACTION COMMENTARY AND SUPPORTING GUIDELINES
111 THE ROLE AND FUNCTION OF CREDIT QUALITY MONITORING
113 CONCLUSION
116 RATING AGENCIES AND PRICE DETERMINATION IN FINANCIAL MARKETS
117 PRICE THEORY AND PRICES
120 DISTINGUISHING BETWEEN PRICE AND VALUE
122 Evaluation of Value and Price for Financial Products
124 Deriving Prices from Values
124 MARKETS, CREDIT MARKET, AND PRICES
127 Price Determination in Credit Markets
129 RATING AGENCIES AND THEIR ROLE IN THE DETERMINATION OF PRICES
132 Abstraction and Reduction Reality
133 Calculative Tools and Judgment Devices
137 CONCLUSION
140 REGULATORS, REGULATIONS, AND PRICE DETERMINATION IN FINANCIAL MARKETS
141 REGULATIONS OF FINANCIAL MARKETS
141 History of Regulations in Financial Markets
141 Objectives of Financial Market Regulation
143 How Regulators and Regulations Regulate Financial Markets
144 Regualtion, De-Regulation, Liberation and Their Impact on Globalization
146 REGULATORY IMPACT ON PRICE DETERMINATION IN FINANCIAL MARKETS
151 Prices and Regulation
146 Effects of Regulatory Rules on Insider Trading and Price Formation in Financial Markets
154 REGULATORY ISSUES RELATED TO RATING AGENCIES
154 A Regulatory Paradigm for Rating Agencies
157 Private Securities Litigation Reform Act of 1995
159 Sarbanes-Oxley Act of 2002
160 Credit Rating Agency Reform Act of 2006
162 Basel I to II framework
164 The Rating Agencies Paradox and the Consequences of Under-Regulation
165 The de Laroisière Report and the FSA Turner Review
167 A REGULATORY FUTURE FOR RATING AGENCIES
168 CONCLUSION
170 RESPONSE TO RATING AGENCIES SHORTCOMINGS
172 THE EUROPEAN POSITION
173 Regulation and Reforms on Rating Agencies after the Crisis 2007-2008
176 The "Basel Perspective
178 Current Regulatory Efforts (2013)
178 The European Rating Agency Case
180 THE CHINESE POSITION (AND AN EMERGENT RUSSIAN ALLY)
185 THE INDIAN POSITION
191 THE CANADIEN POSITION
193 THE AUSTRALIAN POSITION
195 THE JAPANESE POSITION
197 RATING AGENCIES AND THE FUTURE OF REGULATORY OVERSIGHT
200 CONCLUSION
202 EMPIRICAL RESEARCH: DESIGN AND METHODOLOGY
202 PURPOSE AND RESEARCH APPROACH
203 RESEARCH APPROACH
204 RESEARCH STRATEGY
204 SELECTED RESEARCH METHOD
205 METHODOLOGY INTERVIEWS
208 DATA COLLECTION
209 QUALITY CRITERIA
210 QUESTIONNAIRE DEVELOPMENT
213 EMPIRICAL RESEARCH: RESULTS
214 TOPIC 1: HELPFULNESS OF CREDIT RATINGS AND THE ABSENCE OF BINDING GUIDELINES
216 TOPIC 2: INTELLIGIBILITY OF RATING AGENCIES' TERMINOLOGY AND METHODOLOGY- ALTERNATIVE WAYS TO ASSESS CREDIT RISK
225 TOPIC 3: REMOVAL OF REFERENCES TO CREDIT RATINGS
226 TOPIC 4:LIABILITY OF RATING AGENCIES
229 TOPIC 5: ALTERNATIVES TO RATING AGENCIES IN GENERAL AND THEIR EMBEDDING IN A GOVERNMENT SETTING
233 SUMMARY
236 DISCUSSION, FURTHER RESEARCH, LIMITATION, AND CONCLUSION
236 DISCUSSION
257 FURTHER RESEARCH
259 LIMITATIONS
260 CONCLUSION
263 REFERENCES
321 CURRICULUM VITAE
Özet: 'ABSTRACT Rating agencies play a key role in the globalized financial system. Their service is valuable provided it delivers sound and credible assessments of the ralative default probability of financial instruments enabling a reduction of information asymmetries between issuers and investors. Nevertheless, rating agencies have faced intense criticism for their role in the recent global financial crisis, a consequence of their overrating of structured finance products. In the first instance, this research focuses on explining and discussing the criticism leveled at the rating agencies in the fallout that followed the financial crisis. Thereafter, it investigates the role rating agencies played in the crises and provides an understanding of the implemented, proposed, (and currently underway) reforms in regulatory frameworks and how these affect the functioning of the rating industry. Resultantly, this research addresses two specific research questions. First, how can the perceived or revealed shortcomings be resolved? Second what proposals or solutions should be advanced or implemented to achieve the desired goals? To answer these questions, the research provides a brief synopsis of what led to the crisis, analyzes the forms of criticism the rating agencies have been subjected to and primary problems that have become evident. In so doing, the rating agencies' position is taken into account and the role that they and the regulatory authorities play in the price determination process of financial markets is outlined. Thereafter, the research outlines US regulatory issues relating to rating agencies and analyses responses to rating agencies' shortcomings from Europe, Canada, India, and Asian Pacific countries. The literature rating agencies' and the effects of regulatory measurements is used to identify answers to the question raised. The perspectives evident within the literature reviewed are examined and discussed to provide the framework for the empirical investigations integral to this research. In a qualitative empirical study, 21 investment executives of large financial institutions in the United Kingdom, Germany, and Switzerland were interviewed with respect to their opinions about rating agencies. Despite the critical comments after the 2007-2008 crisis, the existing rating agencies are continuingly appreciated as an important source of credit risk assessment. Any tightening of the liability rules for rating agencies should take the economical practicability into consideration. As a further recommendation, the rating criteria should be simplified and standardized. The findings are useful for regulators and scholars engaged in the transformation of the rating agency industry in the present financial market landscape. Keywords: Financial crisis, rating agencies, rating process, price determination, conflicts of interest, regulation, terminology, methodology, competition, liability.'
Materyal türü: Thesis

includes curriculum vitae (321p)

includes references (263-321p)

'ABSTRACT Rating agencies play a key role in the globalized financial system. Their service is valuable provided it delivers sound and credible assessments of the ralative default probability of financial instruments enabling a reduction of information asymmetries between issuers and investors. Nevertheless, rating agencies have faced intense criticism for their role in the recent global financial crisis, a consequence of their overrating of structured finance products. In the first instance, this research focuses on explining and discussing the criticism leveled at the rating agencies in the fallout that followed the financial crisis. Thereafter, it investigates the role rating agencies played in the crises and provides an understanding of the implemented, proposed, (and currently underway) reforms in regulatory frameworks and how these affect the functioning of the rating industry. Resultantly, this research addresses two specific research questions. First, how can the perceived or revealed shortcomings be resolved? Second what proposals or solutions should be advanced or implemented to achieve the desired goals? To answer these questions, the research provides a brief synopsis of what led to the crisis, analyzes the forms of criticism the rating agencies have been subjected to and primary problems that have become evident. In so doing, the rating agencies' position is taken into account and the role that they and the regulatory authorities play in the price determination process of financial markets is outlined. Thereafter, the research outlines US regulatory issues relating to rating agencies and analyses responses to rating agencies' shortcomings from Europe, Canada, India, and Asian Pacific countries. The literature rating agencies' and the effects of regulatory measurements is used to identify answers to the question raised. The perspectives evident within the literature reviewed are examined and discussed to provide the framework for the empirical investigations integral to this research. In a qualitative empirical study, 21 investment executives of large financial institutions in the United Kingdom, Germany, and Switzerland were interviewed with respect to their opinions about rating agencies. Despite the critical comments after the 2007-2008 crisis, the existing rating agencies are continuingly appreciated as an important source of credit risk assessment. Any tightening of the liability rules for rating agencies should take the economical practicability into consideration. As a further recommendation, the rating criteria should be simplified and standardized. The findings are useful for regulators and scholars engaged in the transformation of the rating agency industry in the present financial market landscape. Keywords: Financial crisis, rating agencies, rating process, price determination, conflicts of interest, regulation, terminology, methodology, competition, liability.'

1 INTRODUCTION

8 WHAT CAUSED THE ECONOMIC AND FINANCIAL CRISIS 2007-2008

9 BACKGROUND

11 FINANCIAL MARKET TURMOIL 2007-2008

13 MBS Corrections and the Securitization Business

14 Rating Agencies

15 Global Markets Contagion

18 CONCLUSION

20 THE CRISIS 2007-2008

21 ON THE ROLE OF THE RATING AGENCIES

22 RATING AGENCIES' ROLE IN STRUCTURED FINANCE

26 MAIN POINTS OF CRITICISM LEVELED AT RATING AGENCIES

26 Conflicts of interest in Rating Agencies' Business Model

30 Lack of Competition

31 Liability Rating Agencies

35 Lack of Transparency in the Rating Process

36 Deficiencies in the Rating Process

45 Quasi-Regulatory Role of Rating Agencies

46 CONCLUSİON

49 THE RATING AGENCIES' DEFENSE- A CRITICAL REVIEW

49 THE ROLE OF CAPITAL AGENCIES AND THEİR RATING IN THE CAPITAL MARKETS

51 MANAGING CONFLICTS OF INTEREST

51 Rating Agencies Business Model

56 Individual Conflicts of Interest

57 Rating Shopping

59 COMPETITION AMONGST RATING AGENCIES

62 LIABILITY

65 TRANSPARENCY IN THE RATING PROCESS

66 PERCEIVED WEAKNESS IN THE RATING PROCESS

75 REGULATORY ROLE OF RATING AGENCIES

77 CONCLUSIONS

82 THE RATING PROCESS

83 RATING SYMBOLS,DEFINITIONS AND THE "SF" MODIFIER

85 CREATION OF STRUCTURED FINANCE INSTRUMENTS

88 How Rating Agencies Conduct the Rating Process for Structured Finance Instrument

91 Request for Rating

92 Pre-Analysis

92 Proceeding of the Rating Process

93 The Committee Process and Communication

95 Assigning the Final Rating

95 AREAS OF ANALYSIS

96 Analyzing the Financial Structure of the Transaction

100 Initial Evaluation

100 Cash Flow Analysis

104 Synthetic Transactions

107 Assessing Operational and Administrative Risks

108 Analysis of Counterparty Risks

109 Legal and Transaction Document Risks in Structured Finance Transactions

110 RATING ACTION COMMENTARY AND SUPPORTING GUIDELINES

111 THE ROLE AND FUNCTION OF CREDIT QUALITY MONITORING

113 CONCLUSION

116 RATING AGENCIES AND PRICE DETERMINATION IN FINANCIAL MARKETS

117 PRICE THEORY AND PRICES

120 DISTINGUISHING BETWEEN PRICE AND VALUE

122 Evaluation of Value and Price for Financial Products

124 Deriving Prices from Values

124 MARKETS, CREDIT MARKET, AND PRICES

127 Price Determination in Credit Markets

129 RATING AGENCIES AND THEIR ROLE IN THE DETERMINATION OF PRICES

132 Abstraction and Reduction Reality

133 Calculative Tools and Judgment Devices

137 CONCLUSION

140 REGULATORS, REGULATIONS, AND PRICE DETERMINATION IN FINANCIAL MARKETS

141 REGULATIONS OF FINANCIAL MARKETS

141 History of Regulations in Financial Markets

141 Objectives of Financial Market Regulation

143 How Regulators and Regulations Regulate Financial Markets

144 Regualtion, De-Regulation, Liberation and Their Impact on Globalization

146 REGULATORY IMPACT ON PRICE DETERMINATION IN FINANCIAL MARKETS

151 Prices and Regulation

146 Effects of Regulatory Rules on Insider Trading and Price Formation in Financial Markets

154 REGULATORY ISSUES RELATED TO RATING AGENCIES

154 A Regulatory Paradigm for Rating Agencies

157 Private Securities Litigation Reform Act of 1995

159 Sarbanes-Oxley Act of 2002

160 Credit Rating Agency Reform Act of 2006

162 Basel I to II framework

164 The Rating Agencies Paradox and the Consequences of Under-Regulation

165 The de Laroisière Report and the FSA Turner Review

167 A REGULATORY FUTURE FOR RATING AGENCIES

168 CONCLUSION

170 RESPONSE TO RATING AGENCIES SHORTCOMINGS

172 THE EUROPEAN POSITION

173 Regulation and Reforms on Rating Agencies after the Crisis 2007-2008

176 The "Basel Perspective

178 Current Regulatory Efforts (2013)

178 The European Rating Agency Case

180 THE CHINESE POSITION (AND AN EMERGENT RUSSIAN ALLY)

185 THE INDIAN POSITION

191 THE CANADIEN POSITION

193 THE AUSTRALIAN POSITION

195 THE JAPANESE POSITION

197 RATING AGENCIES AND THE FUTURE OF REGULATORY OVERSIGHT

200 CONCLUSION

202 EMPIRICAL RESEARCH: DESIGN AND METHODOLOGY

202 PURPOSE AND RESEARCH APPROACH

203 RESEARCH APPROACH

204 RESEARCH STRATEGY

204 SELECTED RESEARCH METHOD

205 METHODOLOGY INTERVIEWS

208 DATA COLLECTION

209 QUALITY CRITERIA

210 QUESTIONNAIRE DEVELOPMENT

213 EMPIRICAL RESEARCH: RESULTS

214 TOPIC 1: HELPFULNESS OF CREDIT RATINGS AND THE ABSENCE OF BINDING GUIDELINES

216 TOPIC 2: INTELLIGIBILITY OF RATING AGENCIES' TERMINOLOGY AND METHODOLOGY- ALTERNATIVE WAYS TO ASSESS CREDIT RISK

225 TOPIC 3: REMOVAL OF REFERENCES TO CREDIT RATINGS

226 TOPIC 4:LIABILITY OF RATING AGENCIES

229 TOPIC 5: ALTERNATIVES TO RATING AGENCIES IN GENERAL AND THEIR EMBEDDING IN A GOVERNMENT SETTING

233 SUMMARY

236 DISCUSSION, FURTHER RESEARCH, LIMITATION, AND CONCLUSION

236 DISCUSSION

257 FURTHER RESEARCH

259 LIMITATIONS

260 CONCLUSION

263 REFERENCES

321 CURRICULUM VITAE

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