Credit Rating Agency

From Open Risk Manual

Definition

A Credit Rating Agency is a firm, institution or other legal entity that issues credit ratings on a professional basis. A rating agency typically publishes reports assessing the Creditworthiness of a borrower or legal entity, either generally or with respect to a specific obligation

Business Models

A credit rating agency assesses the Creditworthiness of borrowers either on an absolute standalone basis or in comparison with suitably defined peer group. A Credit Rating may be business specific or financial product specific.

Recognized Agencies

  • In the US, recognition as Nationally Recognised Statistical Rating Organisation (NRSRO) by the Securities and Exchange Commission.
  • In the EU, recognition as External Credit Assessment Institutions (ECAI) by the European Securities and Markets Authority (ESMA).

Relation to Credit Bureaus

  • Rating Agencies typically focus on firms and similar legal entities which makes them distinct from Credit Bureaus which provide credit risk assessments for individuals
  • Credit Ratings are usually employing a discrete Credit Rating Scale in contrast to the more granular Credit Score produced in retail credit risk assessments


Issues and Challenges

  • Significant challenges revealed in the financial crisis of 2008


Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with or correctly interprets the concepts covered by the FIBO ontology.

Contributors to this article

» Wiki admin