Report

Rating risks: risk and uncertainty in an opaque industry

Abstract: The pattern of disagreement between bond raters suggests that bank and insurance firms are inherently more opaque than other firms. Moody's and Standard and Poor's split more frequently over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from their assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. Our findings bear on both the existence and reform of bank regulation.

Keywords: Credit ratings; Bank assets; Risk;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2000

Number: 105