Sources of power of the Big Three credit rating agencies in international financial markets
More details
Hide details
Akademia Ignatianum w Krakowie
Submission date: 2018-11-30
Final revision date: 2019-03-03
Acceptance date: 2019-07-06
Publication date: 2019-07-24
Corresponding author
Alicja Malewska   

Akademia Ignatianum w Krakowie
JoMS 2019;41(2):157-168
The aim of this study is to describe and analyze the sources of the strong position of the Big Three rating agencies (Moody's, Standard & Poor's, Fitch Ratings) in international financial markets and confront dominant academic views with post-crisis reality.

Material and methods:
System analysis allowed to extract, describe and explain the main sources of power of credit rating agencies. An analysis of US and EU legal acts as well as the theory of transaction costs and information asymmetry was also applied.

Two processes contributed to the creation of an oligopoly in the credit rating market: the effectiveness of rating agencies in the first decades of their existence, which allowed to gain investors’ trust and legal provisions sanctioning the dominance of the three largest entities.

However, the global financial crisis has damaged the agency's reputation and led to major financial market reforms. Despite this, the Big Three maintained its strong position, which can be explained by the profitability of the rules in force for all major market participants.

Basel Committee on Banking Supervision (2006). Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version, Bank for International Settlements.
Bonsall IV, Samuel B. (2014). The impact of issuer-pay on corporate bond rating properties: Evidence from Moody׳ s and S&P׳ s initial adoptions. Journal of Accounting and Economics 57.2-3, s. 91-93. ISSN 0165-4101.
Cantor, R., Packer, F. (1995). Sovereign Credit Ratings. Current Issues in Economics and Finance Vol. 1 No.3, s. 2.
Coffee, J. C. (2006). Gatekeepers: The Professions and Corporate Governance. New York: Oxford University Press, s. 2-5. ISBN 9780199288090.
De Santis, R.A. (2012). The Euro area sovereign debt crisis: safe haven, credit rating agencies and the spread of the fever from Greece, Ireland and Portugal. ECB Working Paper Series No 1419, s. 2-4.
Department of Justice, Justice Department and State Partners Secure $1.375 Billion Settlement with S&P for Defrauding Investors in the Lead Up to the Financial Crisis, 03.02.2015. Pozyskano (20.11.2018) z
Department of Justice, Justice Department and State Partners Secure Nearly $864 Million Settlement With Moody’s Arising From Conduct in the Lead up to the Financial Crisis, 13.01.2017. Pozyskano (20.22.2018) z
Dimitrov, V., Palia, D.,Tang., L. (2015). Impact of the Dodd-Frank act on credit ratings. Journal of Financial Economics 115.3, s. 505-506. ISSN 0304-405X.
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
Dziawgo, D. (2010). Credit rating na międzynarodowym rynku finansowym. Warszawa: PWE Polskie Wydawnictwo Ekonomiczne, s. 68-69. ISBn 9788320818680.
Ferri, G., Liu, L.-G., Stiglitz, J.E. (1999). The Procyclical Role of the Credit Rating Agencies: Evidence from the East Asian Crisis. Economic Notes Vol 28, Issue 3, s. 335-355. ISSN 1468-0300.
Gaillard, N. (2014). How and why credit rating agencies missed the Eurozone debt crisis. Capital Markets Law Journal Vol. 9, No. 2, s. 128. ISSN 1750-7219.
Griffin, J. M., Nickerson, J., Yongjun Tang, D. (2013). Rating shopping or catering? An examination of the response to competitive pressure for CDO credit ratings. The Review of Financial Studies 26.9, s. 2270-2310. ISSN 0893-9454.
Hill, C. (2004). Regulating the Rating Agencies. Washington University Law Quarterly Vol. 82 (43), s. 43-97. ISSN 0043-0862.
Jiang, J. X., Stanford, M.H., Xie, Y. (2012). Does it matter who pays for bond ratings? Historical evidence. Journal of Financial Economics 105.3, s. 608. ISSN 0304-405X.
Krugman, P., Wells, R. (2013). Mikroekonomia. Warszawa: Wydawnictwo naukowe PWN. ISBN 9788301172091.
Lugo, S., Croce, A., Faff, R. (2014). Herding behavior and rating convergence among credit rating agencies: evidence from the subprime crisis. Review of Finance, 19(4), s. 1703-1731. ISSN 1573-692X.
Malewska, A. (2019). Ekonomia polityczna ratingu kredytowego. Kraków: Wydawnictwo Naukowe AIK. ISBN 9788376143910.
McClintock Ekins, E., Calabria, M. A. (2012). Regulation, Market Structure and Role of the Credit Rating Agencies. Policy Analysis No. 704, s. 9-10. ISSN 1047-1987.
Mullard, M. (2012). The credit rating agencies and their contribution to the financial crisis. The Political Quarterly 83.1, s. 77-95. ISSN 1467-923X.
Partnoy, F. (2010). Historical Perspectives on the Financial Crisis: Ivar Kreuger, the Credit-Rating Agencies, and Two Theories about the Function and Dysfunction of Markets. Legal Studies Research Paper Series No. 10-09, s. 438-441.
Sinclair, T. J. (2014). The new masters of capital: American bond rating agencies and the politics of creditworthiness. USA: Cornell University Press, s. 42-156. ISBN 9780801474910.
Sylla, R. (2002). A Historical Primer on the Business of Credit Ratings, w: R. M. Levich (red.) Ratings, Rating Agencies and the Global Financial System. Boston: Springer, s. 6-7. ISBN 9781461509998.
U.S. Securities and Exchange Commission (2017). Annual Report on Nationally Recognized Statistical Rating Organizations, s. 9. Pozyskano (18.11.2018) z
Waszkiewicz, A. (2004). „Papierowe” bogactwo sekurytyzacji. Bank i Kredyt 35(4), s. 16. ISSN 0137-5520.
Journals System - logo
Scroll to top