Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269098 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2691
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
In this paper, we empirically investigate the impact of intensified competition on rating quality in the credit rating market for residential mortgage-backed securities (RMBS) in the period 2017-2020. We provide evidence that competition between large credit rating agencies (CRAs) (Moody's and Standard & Poor's) and newer smaller ones (Dominion Bond Rating Service Morningstar and Kroll Bond Rating Agency) creates credit rating inconsistencies in the RMBS market. While a credit rating should solely represent the underlying credit risk of a RMBS, irrespective of the competition in the market, our results show that this is not the case. When competitive pressure increases, both large and small CRAs tend to adjust their rating standards (smaller CRAs react to large CRAs and vice versa).
Subjects: 
rating quality
credit rating agencies
competitive pressure
JEL: 
G15
G21
G24
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5275-0
Document Type: 
Working Paper

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