The rating agencies has been questioned during the financial crises. Both in the Mexican crisis of 1994-1995 and in the Asian crisis of the late 1990s, they were accused of reacting to changes rather than anticipating them. Subsequently the agencies again came under the spotlight when Enron and Parmalat were assigned an investment grade rating in the days prior to their bankruptcy. Therefore over the course of time different episodes have shown the procyclic nature of ratings, characterised by awarding excessively high ratings during times of economic growth and steep falls at times of economic contraction.
“The very structure of competition in the rating agencies industry is a second element that may be affecting the quality of the ratings awarded.”
As well as the procyclic character, a series of aspects cast doubt over the proper functioning of the agencies and consequently the objectivity and accuracy of ratings. First, it is usually argued that there is a conflict of interest with rating agencies. On many occasions the income that the agencies obtain for awarding a rating derives from negotiations between the customer requesting a rating and the agency itself, giving rise to what is known as “rating shopping”. This can lead to a customer who is dissatisfied with the rating awarded going to another agency in search of a better rating. The agencies, aware of this behaviour and in order not to lose market share, may be incentivised to award ratings of lower quality. This conflict is intensified by the fact that the rating agency can also offer the firm evaluated advice or consultancy, even regarding the same products as it will subsequently evaluate and to which it will award a rating. These conflicts are intensified by the fact that some shareholders of the CRAs are asset managers, or entities that are also evaluated by the same agencies.
The very structure of competition in the rating agencies industry is a second element that may be affecting the quality of the ratings awarded. This is an industry consisting of private firms in an oligopolistic position. 92% of the worldwide market is shared among three rating agencies, who form what is known as the “Big Three” (Standard and Poor’s, Moody’s and Fitch). The rest of the market share, 8%, is divided among small rating agencies of a local character: Dominion Bond Rating Service (Canada), Japan Credit Rating Agency (Japan), Egan-Jones Rating Company (EEUU), Baycorp Advantage (Australia), Dagong Global (China) and Muros Ratings (Russia). Behind the oligopolistic structure lies, first, the fact that the CRAs’ principal asset is their reputation, and to achieve it requires a long period of time, in which it can be verified that the ratings fit the true credit quality of the products evaluated. In this sense the members of the Big Three are century-old firms and consequently have an advantage over the rest of the CRAs. Furthermore in 1975 the Securities and Exchange Commission (SEC) of the USA authorised only these three agencies to award ratings with regulatory value in the computation of the capital requirements of intermediaries in the securities markets and credit entities. Consequently only these agencies were recognised as National Registered Statistical Rating Organizations (NRSROs), thus constituting an oligopoly.
Another aspect casting doubt over the recent behaviour of CRAs is the failures and the lack of transparency of their methodology. In this sense, the Financial Stability Forum5 pointed out that in relation to structured products there exist: “weaknesses in the models and methodologies of the rating agencies; inadequate diligence in reviewing the quality of the assets underlying the products rated; insufficient transparency regarding the assumptions, criteria and methodologies used in rating; insufficient information on the meaning of ratings and their risks; insufficient attention to conflicts of interest in the rating process”. According to the methodological reports of Fitch6, Moody’s7 and Standard and Poor’s8, the rating agencies assess the credit quality of banking entities taking into account a series of quantitative and qualitative factors. For Moody’s9 the quantitative determinants (economic and financial variables) represent 30% of the rating. Among these factors are aspects as varied as profitability, equity, liquidity, sources of finance, level of efficiency and quality of assets. However, the greatest weight in the ratings is that of qualitative factors derived from the analysts’ own criteria. Among these factors are the regulatory and operating environment, risk, external support and franchise value (market power). Consequently, given the great weight of these qualitative factors, it is at times a complex task to explain the ratings awarded.
“What is at stake for a rating agency when evaluating a country, an issue, a financial entity or a structured product? Apart from its reputation, which is no small thing, nothing.”
Another important question is that unlike what occurs with auditing firms, the rating agencies, arguing that their ratings reflect only their “opinions”, have no kind of civil or criminal liability. Diamond in a famous article, establishes that the capability of banks to supervise their borrowers is based on the fact that, having a capital requirement, they invest part of their own assets when making a loan, hence they have their own incentives to be diligent in evaluating and monitoring the risks. However, what is at stake for a rating agency when evaluating a country, an issue, a financial entity or a structured product? Apart from its reputation, which is no small thing, nothing. Therefore, it would be useful to demand some kind of asset liability regarding the ratings that they award.
Debe
remarcarse que las consecuencias del proceso de liberación fueron en parte aliviadas
por la integración de España dentro de la Unión Europea en el año 1986. Pero en
el año 1993 tras la finalización de las Olimpiadas y de la Exposición
Internacional de Sevilla se produjo una etapa de recesión económica donde se
llegó a alcanzar casi los 3 millones de desempleados. Fue a partir de entonces
cuando el auge de la construcción nos llevó a crecer en términos de PIB por
encima de la media de la Unión Europea y alcanzar prácticamente el pleno empleo.
Pero con el estallido de la Crisis Subprime
en Estados Unidos en 2007 que supuso una desconfianza en los mercados
internacionales, junto a la propia burbuja inmobiliaria española y el declive de
algunos sectores manufactureros, España se sumerge en una profunda crisis sistémica.
Una crisis que como a muchos les explico, se puede comparar con la Gran
Depresión del año 1929. Se sabe cuándo
se inicia pero no cuándo terminará. De ahí que siempre que hablo de la crisis actual, No dibujo en la pizarra una “V”
como hago cuando hablo de recesión, sino una “L”, caracterizada por un proceso
de caída y estancamiento del PIB.
