cras

Credit Rating Agencies (CRAs) are firms that assess the creditworthiness of issuers of debt and their securities, including sovereigns, corporations, and structured finance products. Ratings inform investors about the likelihood that a borrower will meet principal and interest payments on time. The major CRAs typically assign ratings on a standardized scale ranging from high-grade to default; examples include AAA, AA, A, BBB, BB, B, CCC, D, with pluses and minuses indicating relative standing. Ratings may be assigned to issuers (issuer ratings) or to specific debt obligations (issue ratings).

CRAs earn revenue mainly by charging issuers for rating services, which can raise concerns about conflicts of interest, since issuers may seek favorable ratings to access cheaper funding. Ratings influence borrowing costs, investment decisions, and regulatory capital requirements, making CRAs highly influential in financial markets. They also provide methodologies and surveillance, with ongoing updates reflecting new information.

Regulation and oversight: In the United States, CRAs are registered with the Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations (NRSROs). The Credit Rating Agency Reform Act of 2006 strengthened oversight and disclosure. In the European Union, ESMA oversees CRAs operating in member states. Internationally, principles established by IOSCO guide best practices; post-2008 reforms sought to reduce procyclicality and increase transparency and methodological rigor.

Common criticisms include potential conflicts of interest, opacity in rating methodologies, short-term procyclicality, and reliance by markets that can amplify shocks. Reforms have emphasized better disclosure, governance, and use of multiple ratings and alternative credit measures.

Major CRAs include S&P Global Ratings, Moody's Investors Service, and Fitch Ratings. Additional players operate regionally or specialize in niche markets such as structured finance.