Stocktaking on the use of credit ratings

June 2009

In its report to the G7 titled Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience, the Financial Stability Forum (FSF) requested the Joint Forum to conduct a stocktaking of the uses of external credit ratings by its member authorities in the banking, securities and insurance sectors. The request also suggested that authorities review whether their regulations and/or supervisory policies unintentionally give credit ratings an official seal of approval that discourages investors from performing their own due diligence.

To implement the FSF request, the Joint Forum Working Group on Risk Assessment and Capital (JFRAC) prepared and circulated to member authorities a questionnaire on the use of credit ratings in their jurisdictions. The questionnaire was designed to elicit information regarding member authorities' use of credit ratings in legislation (statutes), regulations (rules), and/or supervisory policies (guidance) affecting, or generated by, such authorities (collectively, LRSPs).


The questionnaire requested information on the definitions (either internal or via cross-reference to an external source) of "credit ratings," "credit rating agencies," or any related terms as well as any references to specific credit rating agencies in LRSPs. Member authorities were also asked questions regarding the usage of credit ratings and/or references to credit rating agencies (or, in either case, related terms) in their LRSPs, including an explanation of what each LRSP was designed to accomplish and the purpose of using credit ratings in the LRSP. Finally, the questionnaire asked member authorities to describe their assessments, if any, of unintended implications of such uses, in particular, whether the use of credit ratings has had the effect of implying an endorsement of such ratings and/or rating agencies or discouraging investors from performing their own due diligence.