In defence of credit-rating agencies

Fifteen years ago, in August 2008, the world’s credit-rating agencies were in the midst of the worst period in their history. The global financial crisis was about to reach its zenith. It was already clear that the allegiances of rating agencies—beholden to both investors in and issuers of debt—had been stretched beyond a healthy limit. The survival of their business model looked uncertain.In a turn-up for the books, rating agencies have more than survived. Borrowers’ demands to have their homework marked have surged. During the market boom of 2021, Moody’s Investors Service, one of the “big three” agencies, made almost $4bn in revenues, compared with $1.8bn at its peak in 2007. The “issuer pays” business model, in which borrowers are on the hook for having their own bonds rated, creating a conflict of interest for the agencies, has limped on, too, despite endless demands for change. Yet even though they have gone largely unreformed, rating agencies have been on a good run in recent years.