Paper Spotlight: Rethinking the Use of Credit Ratings in Capital Regulations: Evidence From the Insurance Industry
One major lesson from the 2008-09 financial crisis that subsequently shaped in part the regulatory framework that emerged in the last decade was that downgrades of securities occurring in an interconnected financial system create a need for capital relief for regulated entities. This happens because banks’ and insurers’ capital requirements are based on credit ratings. The question is what kind of short-term and long-term incentives arise from such relief programs.… Read More »Paper Spotlight: Rethinking the Use of Credit Ratings in Capital Regulations: Evidence From the Insurance Industry