Credit ratings and complementary sources of credit quality information

BCBS Publications No 3
August 2000

Bank regulation has made increasing use of external credit ratings in recent years and, in June 1999, the Basel Committee on Banking Supervision proposed a revision to the international capital accord that included a more prominent role for credit ratings. This study contains background information about credit ratings and complementary sources of credit quality information, which may be helpful to those revising the proposed accord and more generally to those interested in the use of credit ratings in regulation. The focus of the study is on factual information, rather than on subjective assessments or explicit policy recommendations. The material may be classified into four basic categories:

1. facts about the credit ratings industry, such as lists of rating agencies, the extent of their activities, market practices, etc.,
2. factual information about alternative sources of credit quality information,
3. summaries of the results of earlier research on credit ratings from various sources, including academics, supervisory institutions, and rating agencies, and
4. empirical work performed specifically for this study, intended to fill in a few gaps in the existing empirical literature.