<p>This is one of the most recent books on the topical issue of regulating the credit rating agencies to be published in the past eighteen months. The other recent and notable publications on the same topic include: Raquel Garcia Alcubilla and Javier Ruiz del Pozo, <italic>Credit Rating Agencies: An Analysis of European Regulation</italic> (Oxford: Oxford University Press, 2012); Gianlucca Mattarocci, <italic>The Independence of Credit Rating Agencies: How Business Models and Regulators Interact</italic> (Waltham, Massachusetts, Academic Press Inc, 2013); Roger Nye, <italic>Understanding and Managing the Credit Rating Agencies</italic> (London, Euromoney Institutional Investor Publications, 2014).</p>
<p>The question to be answered in this particular book review is the extent to which Aline Darbellay's monograph makes a significant contribution to the literature on the evolving regulation of credit rating agencies. To reach a reasoned conclusion, let us consider the main thesis of the book, the book's structure and content, as well as the persuasiveness of its conclusions.</p>
<p>The central thesis of the book is that the credit rating agencies contributed significantly to the Global Financial Crisis (2007–2009) and they need to be reformed effectively. According to Darbellay, the recent post-crisis reforms concerning credit rating agencies that have been carried out in the US and the EU have their limitations, despite these regulations being reasonably extensive. Darbellay argues that the new regulations do not fully address the problem of restoring competition in the credit rating industry, where an oligopolistic market currently exists. In such an oligopolistic market the “Big Three” agencies (Moody's, Standard & Poor, and Fitch), which dominate the market, have little incentive to compete on the quality of their ratings. Were competitive incentives to be introduced, the book's author concludes, the functioning of the credit rating agencies would be improved and systemic risks reduced.</p>
<p>Darbellay develops her thesis by explaining the function of credit rating agencies in the modern financial systems, noting how the Big Three established their domination of the ratings market.</p>
<p>The author then explains the important role played by the credit rating agencies in contributing to the financial crisis, when these agencies rated the banks and other systemically important financial institutions as highly unlikely to fail when the reality was that such institutions were fragile. These institutions were exposed to significant...</p>
