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AER - September 2002

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American Economic Review

Vol. 92, No. 4, September 2002

Rating Banks: Risk and Uncertainty in an Opaque Industry Donald P. Morgan
Article Citation
Morgan, Donald P. 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry ." American Economic Review, 92(4): 874–888.
DOI:10.1257/00028280260344506
Abstract
The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation. (JEL G20, G21, G28)

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Authors

Morgan, Donald P.

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