Ratingagency

BRICS members should establish a new independent rating agency to break the current monopoly and play a greater role in the global financial market

INTERNATIONAL credit-rating agencies are products of economic globalization, especially the liberalization and integration of financial and investment activities. As borrowers or bond issuers may be geographically remote, lenders were unable to learn their creditworthiness or possibilities of borrowers’ default. However, lenders needed to know how likely it would be for the borrowers to pay back the debts so that they were able to contain risks of their investments. Against this backdrop, international influential rating agencies emerged to assign credit rating for debt issuers.

Since 1860, when Henry Poor started the rating agency of Standard & Poor’s, the business of rating major companies and countries was gradually dominated by the big three agencies - Standard & Poor’s, Moody’s and Fitch - that still remain the industry standard-bearers and take up 95 percent of global rating business.

In 1975, the Securities and Exchange Commission, the U.S. financial watchdog, acknowledged these three as Nationally Recognized Statistical Rating Organizations. As an economic superpower that had material influence on international financial markets, the United States, in effect, reinforced the monopoly of these agencies by granting such an endorsement.