Legal Studies On Risk-Defensive Mechanism Of Credit Rating In American Asset Securitization

Credit rating aims at evaluating credit risk of the object subjected to them, and it is very important for worldwide capital market. The "worldwide credit crisis" that challenged credit rating agencies’role and function began in2007. And credit rating agencies are criticized for their low quality ratings and failure to predict risks. Credit rating was born to meet market demands, and was designed to predict potential credit risk. Although there are many problems, credit rating system is very valuable. Moreover, all achievements of credit rating agency reform suggest that credit rating agencies can go back to the fundamental orientation of credit rating under governmental regulation. The rules adopted by American government during reform deserved to be learned. Credit rating system has a short history in China, therefore legal norms and regulatory rules are deficient in our country. To improve this situation, the government should focus on specific legislation and defining the characteristics of credit rating agencies and authorizing special regulatory institution in order to strengthen regulation. This article can be divided into four parts.Firstly, this article illustrates the legal status of credit rating agencies in America. Credit rating system is supposed to address the problem of information asymmetry. Rating system can produce valuable information on credit risks in capital markets. And by this way, rating agencies accumulated reputation based on their work. American government uses credit rating as a means of supervision, and makes rules to establish its status in regulatory system at the same time.Secondly, this article illustrates credit rating’s role of risk defense in capital market. Credit rating system can predict transaction risk through building examination system. As for securitization, credit rating system can provide credit risk information by reviewing transaction risk. From this perspective, credit rating system is important for the stability of capital market.Thirdly, this article illustrates the existing problem in rating market. The credit crisis has proved rating malfunction, which was the result of wrong behaviors of rating agencies. Therefore, regulator should adopt new rules to rule these organizations. Rating system is designed to solve the problem of information asymmetry, and it can accomplish this goal. Moreover, the reputation mechanism can not restrict and rule rating agencies any longer. Governmental regulation has made its way in credit rating market.Lastly, this article illustrates credit rating in China. Generally speaking, the existing problems include lack of rules and regulation. These problems will seriously restrict the healthy development of rating market. Therefore, government should start legislation and authorize regulatory institution in order to boost rating market and keep it in order.