The credit rating crisis

Efraim Benmelech*, Jennifer Dlugosz

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

69 Scopus citations

Abstract

Since June 2007, the creditworthiness of structured finance products has eteriorated rapidly. The number of downgrades in November 2007 alone exceeded 2,000 and many downgrades were severe, with 500 tranches downgraded more than 10 notches. Massive downgrades continued in 2008. More than 11,000 of the downgrades affected securities that were rated AAA. This paper studies the credit rating crisis of 2007-2008 and in particular describes the collapse of the credit ratings of ABS CDOs. Using data on ABS CDOs we provide suggestive evidence that ratings shopping may have played a role in the current crisis. We find that tranches rated solely by one agency, and by S&P in particular, were more likely to be downgraded by January 2008. Further, tranches rated solely by one agency are more likely to suffer more severe downgrades.

Original languageEnglish (US)
JournalNBER Macroeconomics Annual
Volume24
StatePublished - Dec 1 2009

ASJC Scopus subject areas

  • Economics and Econometrics

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