ratinginstitut

A ratinginstitut is an organization that evaluates and assigns ratings to entities, financial instruments, or activities based on predefined criteria of credit risk, performance, or quality. The term is commonly used for credit rating agencies that assess the creditworthiness of sovereigns, companies, and debt securities. ratinginstituts may also rate ESG performance, product quality, or other risk factors.

Functions and methods: ratinginstituts provide independent opinions that help investors, lenders, and regulators estimate risk and determine pricing, capital requirements, and investment mandates. Ratings are expressed on a standardized scale and may include outlooks or watches. Assessments combine quantitative metrics (leverage, cash flow, repayment capacity) with qualitative factors like governance.

Impact and scope: ratings influence borrowing costs, eligibility for funds, and regulatory treatment in some jurisdictions. They shape portfolio construction and can trigger upgrades or downgrades and shifts in risk perception.

Regulation and oversight: ratinginstituts operate under regulatory supervision in many countries to ensure transparency and independence. In the United States, the SEC oversees credit rating agencies; in the European Union, ESMA and national regulators supervise them.

History and notable ratinginstituts: the modern rating industry emerged in the early 20th century with Moody's, Standard & Poor's, and Fitch Ratings. Other notable ratinginstituts include DBRS, Scope Ratings, and Egan-Jones.

Criticisms include conflicts of interest, rating accuracy, and systemic risk, prompting reforms after financial crises.