Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/183465 
Year of Publication: 
2018
Series/Report no.: 
IFN Working Paper No. 1236
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
The poor performance of credit ratings of structured finance products in the financial crisis has prompted investigation into the role of credit rating agencies (CRAs) in designing and marketing these products. We analyze a two-period reputation model in which a CRA both designs and rates securities that are sold both to investors who require highly rated securities and investors who are unconstrained. Assets are pooled and senior and junior tranches are issued with a waterfall structure. When rating standards are low, the CRA will include only risky assets in the securitization pool, serving both types of investors without any rating inflation. Rating inflation may be non-monotonic in rating standards, with no rating inflation when rating standards are low and high.
Subjects: 
Credit rating agencies
Reputation
Structured finance
JEL: 
G24
L14
Document Type: 
Working Paper

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