User:Puikwan/draft article on Non-Profit Credit Rating Agency
A Credit Rating Agency (CRA) is a company that provides credit ratings on debt issuers and issues. Although CRAs play an important role in financial markets, the value of their credit ratings has been criticized in light of the 1997 Asian financial crisis, the demise of conglomerates like Enron and WorldCom that were unanticipated by CRAs, and more recently after the 2007-2012 global financial crisis and during the European sovereign-debt crisis. The lack of competition, the for-profit motive of the CRAs and the inherent conflicts of interest, have often been identified as hindering the production of accurate ratings.
As a consequence, CRAs have been under enormous scrutiny and reforming the credit rating industry has become an important policy concern. Regulatory changes and developments have been focused both on closer supervision of the CRAs and reducing reliance on external CRAs, rather than overhauling the whole system or taking an alternate approach (e.g. Dodd-Frank Act). However, some organizations have started non-profit alternatives, making a case that simply tinkering with technical aspects of the business model of credit rating agencies is insufficient. As these alternatives become more prominent, the credit rating industry is naturally reformed by the competitive pressure from non-profit alternatives.
Existing Non-Profit Credit Rating Tools
[edit]Credit Research Initiative
[edit]The Credit Research Initiative (CRI) was set up to advance scientifically sound credit risk analytical methodologies, provide credit ratings as a public good and disseminate credit quality assessments of exchange‐listed firms around the globe on a timely basis and free of charge.
Wikirating
[edit]Wikirating is an online credit rating platform that aims to be an independent and transparent source of credit rating information. It has the intent to provide a platform where anyone can contribute for better, open and more transparent credit risk assessment.
Public Sector Credit Framework
[edit]The Public Sector Credit Framework (PSCF) was launched as an open source tool for estimating the default risk of and assigning ratings to government debt.
Proposed Non-Profit Credit Rating Tools
[edit]Roland Berger
[edit]After the European Union decided not to proceed with a plan for an EU-funded CRA in November 2011, the consulting firm Roland Berger announced its search for €300m in startup funds from investors to establish a non-profit European CRA.[1] The Berger CRA would be based on the subscriber-paid model, where investors interested in access to reliable and objective results pay for ratings.
INCRA
[edit]In April 2012, the Bertelsmann Foundation published a blueprint for the establishment of INCRA, an international non-profit credit rating agency targeting sovereign default risk.[2]
Comparison of Non-Profit Credit Rating Tools
[edit]The following table compares the non-profit credit rating tools.
| Non-Profit Credit Rating Tool | Launched in | Level of Transparency | Data Availability |
|---|---|---|---|
| CRI | July 2009[3] | Non-Proprietary | Daily updated Probability of Default (PD) for individual firms and various aggregates |
| Wikirating | October 2011[4] | Collaborative | |
| PSCF | May 2012[5] | Open source | |
| Roland Berger | |||
| INCRA |
References
[edit]- ^ "Non-profit credit rating agency challenge". Financial Times. 16 April 2012. Retrieved 10 September 2012.
- ^ "A Blueprint for "INCRA" - An International Non-Profit Credit Rating Agency". Bertelsmann Foundation. Retrieved 31 August 2012.
- ^ "NUS institute to offer credit rating system". The Straits Times. July 2009. Retrieved 10 September 2012.
- ^ "AAAstreine Idee". Financial Times Deutschland. 2 January 2012. Retrieved 10 September 2012.
- ^ "Public Sector Credit Framework". Public Sector Credit Solutions. Retrieved 10 September 2012.