During the sub-prime crisis, ratings on complex mortgages products issued by credit rating agencies (CRAs) such as Moody’s and S&P turned out to be too optimistic. In combination with anecdotes about misconduct within CRAs, the dramatic performance of ratings on these products has led to several proposals to regulate CRAs more tightly.

Yet, there is substantial disagreement as to which regulation would be effective. For example, would more competition among CRAs be beneficial or damaging from a social point of view? Moreover, politicians may use the discussion about CRA regulation to put pressure on CRAs not to downgrade their government debt. This can lead to a loss of confidence in government debt markets because investors may interpret such actions as political reluctance to take painful but necessary measures.

<link people dion-bongaerts _blank>Dr Dion Bongaerts, Associate Professor of Finance, is motivated to contribute to research on this topic and received a Veni grant of €250,000 from the Netherlands Organisation for Scientific Research (NWO) to support him for the coming three years. His research will focus on the design of effective regulation of CRAs, and on the effect that political opportunism may have on the process of designing such regulation.

About Dion Bongaerts

Dr Bongaerts has a proven track record in research about credit markets. His work has been presented at major conferences around the world and his articles have been published in top tier academic journals including the Journal of Finance. He holds a PhD degree in Finance from the University of Amsterdam, an MSc in Econometrics from Maastricht University and has been a visiting scholar at Yale School of Management. He has several years of professional working experience as a quantitative risk manager at ABN-AMRO bank.