US Financial Crisis: How Far Can the Rating Agencies be Blamed?



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Code : ECC0008

Year :
2008

Industry : Banking, Insurance and Financial Services

Region : US

Teaching Note: Available

Structured Assignment : Available

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Abstract: This case was written primarily to debate on the role of credit rating agencies in US Financial Crisis (2008). The investment and lending decisions are usually made among various alternatives, by taking cues from credit ratings. The better the credit rating grades, the lower the risk of an instrument, was the assumption. Did credit Rating Agencies play any role in the US Financial Crisis as they rated several structured products and companies' financial position. They were opaque in their methodologies and failed to notice the complexities in the financial derivatives in the early stages. Close on the heels of statements made by the heads of some of the credit rating agencies S&P, Moody's, etc the case makes an interesting debate in the classroom.

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Pedagogical Objectives:

  • To understand the role and importance of CRAs in assessing a company's financial position.
  • To debate over the accuracy of the rating system in understanding the methodologies.
  • To analyse the impact of changes in rating on the operations of the company, which is being rated.
  • To ascertain the role of CRAs in the US Financial Crisis (2008).
    Keywords : Financial Crisis, Subprime Mortgage, Housing Market, Credit Rating, S&P,Moody's, SEC, NRSRO, CDS, CDO, Credit Worthiness, AAA Rating, A+ Rating, Fitch, Financial Derivative

    Contents :
    Credit Rating Agencies: Evolution and Performance
    CRAs: Guiding Investors
    Rating Changes: The Cost ofMisinterpretations
    The Role of CRAs: Are Amendments Necessary?


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