Worlds top credit rating agencies
But much less is said about why and how credit rating agencies operate. What are these agencies? And why do we need them? A credit rating agency is a private company whose purpose is to assess the ability of borrowers, either governments or private enterprises, to repay their debt.
History of Credit Rating Agencies and How They Work
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Fitch is one of the world's top three credit rating agencies. It operates in New York and London, basing ratings on company debt and its sensitivity. Credit Rating Agency/Organization, Non-Profit, Headquarter, accredited by A.M. Best Europe-Rating Services Ltd (AMBERS), No. px-Flag.
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What is a rating agency?
Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. Advertiser partners include American Express, Chase, U. Bank, and Barclaycard, among others. Credit rating agencies have been around for the better part of the 20th century, and have played a key role in the financial world by providing ratings on the creditworthiness of bonds and other debt instruments. These ratings are invaluable tools for investors looking to get a better sense of whether a debt instrument is worth investing in.
The Credit Rating Agencies
The dualheadquartered rating agency Fitch is one of the three nationally recognized statistical rating organizations designated by the U. Moodys Investor Service Moodys Investor Service was founded by John Moody in to produce manuals of statistics pertaining to stocks and bonds and bond ratings. Securities and Exchange Commission. It is the bond credit rating business of the Moodys Corporation, representing the companys traditional line of business and its historical name. In the year , the company was acquired by The McGraw Hill Companies and now includes the financial services division. CRISIL rates entire range of debt instruments including bank loans, certificates of deposit, commercial paper, nonconvertible debentures, asset-backed securities, perpetual bonds and partial guarantees. The ratings agency serves lenders, investors, market intermediaries and regulators by improving information availability and providing benchmarks. It is a Japanese financial services company which publishes credit ratings to interested parties, local governments and Japanese companies. This credit rating agency is engaged in the rating of both long-term and temporary debt obligations and other related activities as well.
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Credit ratings provide retail and institutional investors with information that assists them in determining whether issuers of bonds and other debt instruments and fixed-income securities will be able to meet their obligations. When they issue letter grades, credit rating agencies CRAs provide objective analyses and independent assessments of companies and countries that issue such securities. Here is a basic history of how the ratings and the agencies developed in the U. Countries are issued sovereign credit ratings.
Top 10 Credit Rating Agencies in World
A credit rating agency CRA , also called a ratings service is a company that assigns credit ratings , which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, [1] and in some cases, of the servicers of the underlying debt, [2] but not of individual consumers. The debt instruments rated by CRAs include government bonds , corporate bonds , CDs , municipal bonds , preferred stock , and collateralized securities, such as mortgage-backed securities and collateralized debt obligations. The issuers of the obligations or securities may be companies, special purpose entities , state or local governments, non-profit organizations , or sovereign nations. It affects the interest rate that a security pays out, with higher ratings leading to lower interest rates. Individual consumers are rated for creditworthiness not by credit rating agencies but by credit bureaus also called consumer reporting agencies or credit reference agencies , which issue credit scores. The value of credit ratings for securities has been widely questioned. Hundreds of billions of securities that were given the agencies' highest ratings were downgraded to junk during the financial crisis of — When the United States began to expand to the west and other parts of the country, so did the distance of businesses to their customers. When businesses were close to those who purchased goods or services from them, it was easy for the merchants to extend credit to them, due to their proximity and the fact that merchants knew their customers personally and knew whether or not they would be able to pay them back. As trading distances increased, merchants no longer personally knew their customers and became leery of extending credit to people who they did not know in fear of them not being able to pay them back. Business owners' hesitation to extend credit to new customers led to the birth of the credit reporting industry.
How credit rating agencies rate companies and countries
According to an analysis by Deutsche Welle , "their special status has been cemented by law — at first only in the United States, but then in Europe as well. The European Union has considered setting up a state-supported EU-based agency. For full article, see Credit rating agencies and the subprime crisis. The Big Three have been "under intense scrutiny" since the — global financial crisis following their favorable pre-crisis ratings of insolvent financial institutions like Lehman Brothers , and risky mortgage-related securities that contributed to the collapse of the U. In the wake of the financial crisis, the Financial Crisis Inquiry Report [6] called the "failures" of the Big Three rating agencies "essential cogs in the wheel of financial destruction". The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly.
