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The big three credit rating agencies' role in the global financial crisis has made them the focus of regulators and investors worldwide. The quest is on to find a ratings model that works, because a conflict of interest may exist when the issuer of a financial product foots the bill for a rating. Making investment advisers or pension funds – rather than the vendor of the product – pay for ratings is a smart solution, says global governance expert Ronald Masulis, a professor at the Australian School of Business. Others prefer a performance-based model in which investors effectively rate the raters. But, with the debt-raising capacity of companies and governments dependant on ratings, industry insiders insist the main game now should be restoring the agencies' credibility.
The big three credit rating agencies' role in the global financial crisis has made them the focus of regulators and investors worldwide. The quest is on to find a ratings model that works, because a conflict of interest may exist when the issuer of a financial product foots the bill for a rating. Making investment advisers or pension funds – rather than the vendor of the product – pay for ratings is a smart solution, says global governance expert Ronald Masulis, a professor at the Australian School of Business. Others prefer a performance-based model in which investors effectively rate the raters. But, with the debt-raising capacity of companies and governments dependant on ratings, industry insiders insist the main game now should be restoring the agencies' credibility.
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