Rating agencies: No longer the final word

The homepage of the financial rating agency, Moody's.

David Brancaccio: The ratings agency Moody's could lower credit ratings on the bonds of several U.S. banks this month. The downgrades could send ripples throughout the economy. But not the tidal waves we might've seen just a few years ago.

Marketplace's Eve Troeh reports.

Eve Troeh: Moody's has been on a world tour of downgrades since February. They've hit big banks in Japan and Europe, next stop, the U.S., says finance professor David Beim at Columbia Business School.

David Beim: It is part of a larger pattern, in which banks have been knocked down from their rather high pedestal that they were on some years ago. The financial industry is, I think, undergoing an important and overdue transition.

A transition to an investing world where ratings agencies are supporting acts, not the headliners. Investors used to treat, say, Moody's rating of JP Morgan as the reason to buy or sell. That thinking played a role in the financial crisis. Those ratings are now just one song on an album of tunes that investors listen to.

Stephen Lewis at Monument Securities says the ratings agencies never wanted so much power over investors.

Stephen Lewis: That wasn't always a comfortable position to be in, and so I think they wanted to get out of that situation, which they have done.

But he says giving ratings agencies a smaller stage is just one step in stabilizing the markets.

I'm Eve Troeh for Marketplace.

About the author

Eve Troeh is News Director at WWNO-FM in New Orleans, La., helping build the first public radio news department in the station’s 40-year history. She reported for the Marketplace Sustainability Desk from 2010 to 2013.
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The rating agencies have taken a large blow their perceived invincibility since the recession hit in 2008. The hearings revealed how intertwined their business model was to the banks they are supposed to be watching over. The appearance of corruption was in clear view and since then they have been pushing to look like neutral arbitrators. It also may be because of the lawsuits by investors that have been on their doorsteps since 2008.


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