Abstract

Vandana Gupta1*, R. K. Mittal2and V. K. Bhalla3

The objective of this paper is to critically examine the role of credit rating agencies in the sub-prime crisis. The paper traces the development of the sub- prime crisis from its origin till the aftermath. It studies the weaknesses of credit rating agencies in performing their basic function of timely and accurate rating of bond obligations. The paper then scrutinizes the diversification of credit rating agencies into the structuring and rating of complex securitized products. This raises fundamental issue of the independence and accountability of these agencies. The paper comes to the conclusion that appropriate changes in the regulatory framework of credit rating agencies are necessary to help avert similar crises in the future.