Ratingbyråer

Ratingbyråer are organizations that assess the creditworthiness of issuers of debt and of debt instruments, as well as related financial and non-financial risks. They publish credit ratings that indicate the likelihood of timely debt repayment and potential losses in a default. Ratings help investors evaluate risk, influence borrowing costs, and serve as inputs for regulatory requirements and market practices.

Types of ratingbyråer include credit rating agencies (CRAs) that rate sovereigns, corporations, banks, and structured finance instruments, and specialized agencies that evaluate other risk factors such as environmental, social, and governance (ESG) performance. Ratings are published on standardized scales, typically with long-term categories ranging from investment-grade to high yield and with separate short-term scales. Ratings are often accompanied by outlooks or watches that signal potential changes.

Operation and methodology: Agencies publish methodologies, perform quantitative and qualitative analyses, and maintain surveillance with periodic updates and event-driven actions. Many operate under an issuer-pays model, whereby the rating is funded by the entity being rated. Regulatory and market participants use ratings to determine capital requirements, risk weights, and disclosure obligations, while there is also emphasis on transparency and updating practices.

Regulation and impact: Global financial markets rely on ratings to price risk and allocate capital. Regulators oversee CRAs to ensure independence, transparency, and robust governance. In some regions, regulation encourages diversification of risk assessment and the use of non-rating-based measures alongside traditional ratings.

Criticism and reform: The rating industry has faced criticism for conflicts of interest, procyclicality, and potential incentives for rating inflation. Reforms focus on governance, methodological clarity, conflicts of interest mitigation, and greater reliance on multiple risk signals.

Major players: The dominant global CRAs are Standard & Poor's (S&P Global Ratings), Moody's Investors Service, and Fitch Ratings. Other notable agencies include DBRS Morningstar, Scope Ratings, and Kroll Bond Rating Agency (KBRA).