Opinion
The Rating Reforms Needed to Tackle Private Credit’s Vulnerabilities.
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By Haran Segram
Less than 20 years after the financial crisis, credit rating agencies are once again at the centre of concerns about a systemic risk in finance — this time about how they are now grading the private credit market.
UBS chair Colm Kelleher warned late last year the insurance industry was engaging in “ratings arbitrage” in private credit. That followed a letter by US senator Elizabeth Warren sent to the big agencies asking whether recent ratings have been inflated. The global Financial Stability Board also warned in May that private credit remains untested in a prolonged economic downturn.
The issues raised closely resemble those that surfaced in the aftermath of the 2008 financial crisis. Who pays the rating agency? How is the conflict of interest managed? Why do privately rated bonds impair twice as often as public bonds carrying the same grade, as a recent Columbia Business School research paper suggests?
Read the full Financial Times article.
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Haran Segram is an Adjunct Assistant Professor of Finance.