Why is there a need for three Financial Accounting Ratings
Agencies? Are these agencies measuring the...
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Accounting
Why is there a need for three Financial Accounting RatingsAgencies? Are these agencies measuring the same
attributes? If not, what are the critical differences betweenthese agencies? please elaborate
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A rating agency is a company that assesses the financialstrength of companies and government entities especially theirability to meet principal and interest payments on their debts Therating assigned to a given debt shows an agencys level ofconfidence that the borrower will honor its debt obligations asagreed Each agency uses unique letterbased scores to indicate ifa debt has a low or high default risk and the financial stabilityof its issuer The debt issuers may be sovereign nations local andstate governments special purpose institutions companies ornonprofit organizationsThe Big Three credit rating agencies are Standard PoorsSP Moodys and Fitch Group SP and Moodys are basedin the US while Fitch is dualheadquartered in New York City andLondon and is controlled by HearstRole of RatingAgencies in Capital Markets Rating agencies assess thecredit risk of specific debt securities and the borrowing entitiesIn the bond market a rating agency provides an independentevaluation of the creditworthiness of debt securities issued bygovernments and corporations Large bond issuers receive ratingsfrom one or two of the big three rating agencies In the UnitedStates the agencies are held responsible for losses resulting frominaccurate and false ratingsThe ratings are used in structured financial transactions suchas assetbacked securities mortgagebacked securities andcollateralized debt
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