Behaviour Analysis Of The U.S. Credit Rating Agencies In The Financial Crisis And The Study On Their Regulatory Reform

With the development of global capital markets, there has been endlessinnovation in financial derivatives and trading tools; the global bond market iscontinuously expanding, and its complexity is unceasingly deepening, thusexacerbating the degree of risk in financial markets. In this context, credit ratingagencies, with their own professional advantage in information gathering andprocessing, coupled with their relative independence, have become specializedinformation service agencies which provide credit information and risk warning tocapital market participants and financial regulatory agencies, being called the capitalmarket "gatekeepers." While the influence of credit rating agencies on financialmarkets continues to improve, in several financial crises of recent years, especially inthe global financial crisis triggered by the outbreak of the2007United Statessubprime mortgage crisis, their wrongful act, however, has been much questioned.Before the crisis hit, the credit rating agencies failed to predict the crisis, and theirhighly inflated rating even contributed to the risk expansion; after the crisis, creditrating agencies have massively downgraded previous rating, hence shaking themarket confidence, practically triggering a panic, leading the market to a viciouscycle, and consequently increasing the extent of the crisis. Given the importance ofcredit rating agencies in maintaining normal trade order in financial markets, with thehelp of the analysis on the behaviour of the U. S. credit rating agencies in financialcrises, as well as the study on the regulatory reform of credit rating agencies that theUnited States launched afterwards, this paper attempts to clarify the internal andexternal causes of such credit rating "failures", and accordingly puts forward relevant policy recommendations for the development of China’s credit rating industry.This paper is divided into six chapters:The first chapter is the "introduction" section. Starting from the topics researchbackground, this chapter focuses on reviewing the relevant research literature relatedto credit rating agencies at home and abroad. On such basis, the research methodsused in this paper, research ideas and possible innovations have been described in thischapter which has also pointed out the shortcomings of this paper studies, thereforeproviding direction and ideas for future research.The second chapter is "the historical evolution and analysis of the internationalcredit rating industry". This chapter first clarifies the basic concepts relative to thecredit rating industry, on this foundation, the main function of the credit rating infinancial markets demonstrated, namely, reducing financing costs, decreasinginvestment risk, meeting regulatory requirements and standardizing functions, and itfurthermore introduces the currently widely used credit rating methods and creditrating procedures. After that, the chapter launches a further analysis of the creditrating agencies. First, it outlines the historical evolution of credit rating agencies, andthen introduces the type of credit rating agencies, in addition to briefly describing thecredit rating symbol system of credit rating agencies and its implications. Finally,from the three aspects of rating definitions, rating methodology, and rating test, thischapter conducts a comparative analysis on the rating behaviour of the three majorrating agencies of the United States.The third chapter is "behaviour analysis of the U.S. credit rating agencies in theprocess of global financial crises". After giving a brief review on the U.S. creditrating industry, structured finance market and related structured financial derivatives,this chapter further analyzes the performance of the U.S. credit rating agencies beforethe financial crisis as well as in the evolution process of the financial crisis, andconsequently discusses the effectiveness of the early warning of credit rating agencies, credit mechanism failure, credit rating expansion, monopolistic behaviour of ratingagencies, disclaimer protection and other issues.The fourth chapter is "the root cause analysis on the behaviour of the U. S. creditrating agencies in the financial crisis". This chapter also takes the U.S. credit ratingagencies as the study object. Based on the previous analysis, it focuses on analyzingthe internal and external causes of the misconduct of the U.S. credit rating agencies inthe financial crisis.The fifth chapter is "the analysis on the regulatory reform of the U.S. creditrating agencies". The historical evolution of the U.S. credit rating industry regulatoryrules is generalized and analyzed in this chapter. With the development of creditrating industry, regulation of the U.S. credit rating industry, from the early stage ofrelying on agency self-regulation and market competition mechanism, graduallychanged over to an institutionalized regulatory stage in which the governmentregulators rely on specific regulatory rules for management. Especially after thefinancial crisis, the United States Securities and Exchange Commission has alsoaccelerated the pace of promoting legal construction of the regulation of credit ratingagencies.The sixth chapter is "the enlightenment and reference of the U.S. credit ratingreform to our country ". This chapter turns back to the domestic perspective. In thepost-crisis era, accelerating the cultivation and development of our credit ratingagencies and the industry has not only the historical inevitability, but also the timeurgency. Control of the U.S. credit rating agencies on China’s credit rating market hasbeen a threat both to the economic IT security and financial security, depriving ourcountry of the right to speak in the international capital market. With the furtheropening up of domestic capital market, China should actively promote thedevelopment of independent credit rating agencies, by fostering and supportingnational credit rating agencies, to ensure the country’s discourse right in the international financial market and to safeguard national financial security.