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Rating Banks: Risk and Uncertainty in an Opaque Industry

Rating Banks: Risk and Uncertainty in an Opaque Industry Abstract The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Rating Banks: Risk and Uncertainty in an Opaque Industry

American Economic Review , Volume 92 (4) – Sep 1, 2002

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Publisher
American Economic Association
Copyright
Copyright © 2002 by the American Economic Association
Subject
Articles
ISSN
0002-8282
DOI
10.1257/00028280260344506
Publisher site
See Article on Publisher Site

Abstract

Abstract The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation.

Journal

American Economic ReviewAmerican Economic Association

Published: Sep 1, 2002

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