Credit rating agencies should be regulated more strictly to prevent Essay

Credit rating agencies should be regulated more strictly to prevent conflict of interest, but also should allow more new credit agencies to have more objective opinions - Essay Example They have helped financial market fairly well giving out expert opinions to public investors. However, duDuring the financial crisis, three big credit rating agencies, S&P, Moody’s, and Fitch were condemned for precipitating the crisis giving high credit rate to CDOs, which were defaulted. Since then, ratings of the agencies became controversial and financial regulators have sought to ways to impose more regulations on those ratings. Few agencies dominating the rating industry, they are holding too much power in rating market. This settlement allowed only few rates in financial market. If situation keep remain in the rating industry, more financial crisis will happen in near future. Thus, to avoid another critical situation, it is necessary to regulate credit rating agencies more strictly, but also necessary to broaden the market allowing more participants. In the beginning of the industry, credit agencies’ rates had positive impact on financial markets. At that time, many people who didn’t have financial knowledge had difficulties in choosing where to invest their money. The companies who solved the problems were credit rating agencies. They were consisted of financial experts and analyzed companies and gave easily understandable â€Å"ABC† rates. According to them, high credit rating which was closer to â€Å"As† rates indicates that the borrower has a low probability of defaulting on debt, and conversely low credit rating indicates that the borrower has a high probability of defaulting. Investors could get helped in deciding the companies to invest relying on those rates. Essentially, what they have done is facilitating investments by giving easily understandable reliable sources to judge risk of investments. These rates have had a huge impact on financial markets. Since credit agencies have developed and settled in the financial industry, a lot of investors