ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

In World Economics, What is a Rating Agency?

Updated on June 17, 2013
rating agencies
rating agencies | Source
Standard 7 Poor's rating agency
Standard 7 Poor's rating agency | Source

In world economics, we often hear that this country or that country has had theircredit rating dropped, to the great consternation of everyone, but just who decides these things?

What exactly is a rating agency?

Who elects them?

For the biggest rating agencies in the world, we have to look to the United States where we find the three most influential credit rating agencies - Standard & Poor, Moody's and Fitch.

An unlikely trio of names that no doubt make a lot of people both moody and poor!

Although based in the US, the North American government has no control over these private sector bodies of independent financiers, who have grown so powerful, they now have more control than any elected entities.

The US financial watchdog, the Security's and Exchange Commission (SEC), acknowledged these three companies as National Recognized Stastistical Ratings Organizations (NRSRO) in 1975.

If any company, or indeed country, wishes to borrow money, it is the job of the rating agency to look into their finances and give them a credit rating.

This rating depends on their actual likelihood of paying back the loan.

The lower the rating, the less likely they are to repay, and so the interest rate they are charged is higher.

The NRSRO are responsible for acknowledging the credit-worthiness of businesses and countries wishing to issuebonds, which is a fancy way of saying borrow money, and so a nod from them can be of vital importance to the bond issuer.

Standard & Poor

Standard & Poor began in 1860 by Henry Varnum Poor, a lawyer and financial analyst who had written a book called The History of The Railroads and Canals in the United States.

The company was initially called H.V. and H.W. Poor Co, and he took it upon himself to publish an updated version of his book annually as an aid to investors.

In 1906, Luther Lee Blake founded the Standard Statistics Bureau to provide non railroad statistics, and in 1941 the two companies merged to become Standard & Poor's Corporation.

  • The company made $762M in 2010.

Moody's rating agency
Moody's rating agency | Source


Moody's was founded by John Moody in 1909, who is credited with having being the inventor of bond credit ratings, as they are used today.

In 1900, John Moody published a book entitled Moody's Manual of Industrial and Miscellaneous Securities which was a runaway success, and detailed statistics relating to stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities, and food companies of the day. He formed a company known as John Moody & co.

His updated journals very quickly became nationally recognised, but his business sadly failed to survive the 1907 financial crisis, known as the 1907 Bankers Panic, and he went under, only to make a come-back 2 years later to found Moody's Analyses Publishing Company.

Today, it is known as Moody's Corporation.

  • They made $688M in 2010.

Fitch Rating Agency
Fitch Rating Agency | Source


John Knowles Fitch started the Fitch Publishing Company in New York in 1913.

He developed a financial securities rating system and published several books, among them the Fitch Bond Book, and the Fitch Stock and Bond Manual.

He also provided daily statistics on the New York stock exchange for investors.

Today the Fitch Group are the third biggest rating agency in the world.

The NRSRO and some of how it all works

While there are hosts of other credit rating agencies, those above are the ones everyone pays attention to, precisely because of the NRSRO awarded them by the SEC in 1975.

There are actually 10 NRSRO rating agencies all in, but it is the big three that everyone listens to.

  • The SEC themselves demand that certain regulated investment funds must only hold bonds from those awarded the highest possible ratings from the NRSRO accredited agencies.
  • At the same time, insurance and investment companies are they themselves judged and rated on the quality and reserve of the investments they hold.
  • So if a regulated investment fund holds a bond from a country that has been downgraded in the ratings, they may then be forced by law to sell on the loan they made to the country.
  • When they are no buyers for the bond, the price drops meaning that the bond issuer then has to repay even more.

And we thought it was only loan sharks who did this?


How do rating agencies decide what rating to give?

According to spokesperson from Standard & Poor, a committee of 5 to 8 people make the actual decisions, based on a range of factors.

They base their decisions on "economic, regulatory and geopolitical influences, management and corporate governance attributes, and competitive position of the borrower" among a host of other indicators.

Until the credit crunch of 2007 it could be said that their decisions were dubious at best.

Mortgage-backed securities were in the past given the highest possible rating, even when there was little to no chance of them ever being repaid, and with some of them being fraudulent.

Similarly government-backed debt is good one minute, not so good the next, and with the change in rating plunging countries into further misery and debt as their interest rate rises to pay for the credit rating drop.

In Europe, it could be said that the whole rating system itself is contributing to the financial crisis affecting Italy, Spain, Greece and other EC countries.

Credit ratings and what they mean

Standard & Poor's
This is the best possible rating
miniscule less- higher interest rate
higher again
and yet higher
just a little bit chancy - charge 'em more
more again
yet more
should be able to repay, but not 100%
charge 'em more, they likely can't pay
extremely dodgy
very dodgy
extremely and very dodgy
forget it!
vulnerable to bankrupcy
big no no
feeling generous?
go on, buy the country!

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)