Home \ Resources \ Fact Sheet: Credit Rating Agency Conflicts of Interest Again Fueling A Financial Crisis

Fact Sheet: Credit Rating Agency Conflicts of Interest Again Fueling A Financial Crisis

Updated May 19, 2020

A dangerous conflict of interest lies embedded in the “issuer-pays” business model that most credit rating agencies (“CRAs”) prefer: The companies that issue bonds and need credit ratings to attract investors are the same ones that pick and pay the CRAs to come up with the ratings. This allows companies to "ratings shop” which inevitably results in ratings inflation, and when this pattern becomes widespread, it means that reams of investments that are far riskier than they appear work their way into the financial system. That sets the stage for systemic risk and financial crisis. This is exactly what happened in 2008—and it’s happening again. Learn more in our full fact sheet here or by clicking the button below.

Share This Article: