A major strand in the narrative of the financial meltdown
was that the subprime mortgage-backed securities and the subprime
collateralized debt obligations sectors became unmoored from the market and
rating agency discipline that had characterized other segments of the
In the wake of the financial collapse, many commentators, as well as members of
Congress and regulators, identified the rating agencies as among the chief
culprits. Holding the rating agencies accountable was, however, only the
beginning of the analysis. A more difficult part was determining what
measures should be adopted to prevent this problem from recurring.
In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act
adopted numerous measures targeting the rating agencies and launching a number
of rule-making projects to address this issue. Even before passage of
Dodd-Frank, the Securities Exchange Commission promulgated a new rule
attempting to address the "race to the bottom" phenomenon that afflicted the
rating agencies' analytics in connection with the subprime market.
Simultaneously, across the Atlantic, legislative reforms have been enacted in
successive waves within the European Union to address the perceived rating
agency deficiencies. This reform process is still moving ahead.
Writing for Practical International Corporate Finance Strategies, Ron Borod and Martin Bartlam look at
these proposed rules in the EU and the US - shedding light on
the evolution of rating agency regulation and contrasting the ways the EU
and US are addressing the same problem.
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