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What It Is:
{{AccountNotLive}}
In personal finance, the term credit rating commonly refers to a score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is.
==Index and Glossary==
There is an index to the topics dealt with in the economics articles [[Economics/Related Articles|here]], and a glossary of economic terms [[Economics/Glossary|here]].


In corporate finance, a credit rating is a "grade" assigned to a bond, bond issuer, insurance company, or other entity or security to indicate its riskiness.
See also the  [[Politics/Index|'''index to the politics articles ''']].


How It Works/Example:
[[User:Nick_Gardner#Methodology|methodology]]
Bond rating agencies like Moody's and Standard & Poor's (S&P) provide a service to investors by grading fixed income securities based on current research. The rating system indicates the likelihood that the issuer will default either on interest or capital payments.


    * For S&P, the ratings vary from AAA (the most secure) to C.
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:40%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
    * For Moody's, the ratings go from Aaa to D which means the issuer is already in default.
|"''The European Union is something ...
very precious, not only for us in Europe, but also for the rest of the world. Because the European Union is, in fact, the result of a project for peace that brought together nations emerging from the ruins of the Second World War. It was the European Union that united them in peace around the values of respect for human dignity, freedom, democracy, justice, rule of law and respect for human rights.''"


Only bonds with a rating of BBB or better are considered 'investment grade'. BBB bonds are considered to be suitable for investment by institutions. Anything below the triple B rating is considered to be junk, or below investment grade. Bond ratings are periodically revised based on recent data.
:Merci Olsson, of Nobel Med, congratulating President Barroso on the award of The Nobel Peace Prize t the European Union, 12 October 2012.
 
|}
 
A sovereign spread is supposed to compensate investors for the risk of default. One
component of this compensation should be the expected loss from sovereign default.
For investors who hold the sovereign bond to maturity, this loss is simply the product
of the probability of default and the loss-given-default. For investors who plan to sell
before maturity, the expected loss would also incorporate the prospect of a decline in
credit quality short of default. Another component of the spread is attributable to the
risk premium. Such a premium compensates investors for the fact that the realised loss from default may exceed the expected loss. Such a default risk is asymmetric
because the possible losses from default are large relative to the possible gains from
an absence of default.
Hence, as a measure of credit risk, the probability of default enters the spread in two
ways. First, it is part of expected loss in conjunction with the expected recovery rate.
Second, it is part of the risk premium, the other part being the price of risk
 
 
 
 
==Links==
See the [[Economics/Related Articles|economics index]] for an index to topics referred to in the economics articles.
 
See the [[/Related Articles#Glossary|glossary]] on the Related Articles subpage.
 
See the [[Economics/Glossary|economics glossary]] for definitions not shown on this page
 
See also the [[Economics/Related Articles|economics index]] and the [[Economics/Glossary|economics glossary]].
 
See the [[Financial system/Related Articles#Glossary|finance glossary]]
 
See the [[Banking/Related Articles#Glossary|banking glossary]]
 
==Drafts==
 
==Abstracts==
creates a Consumer Protection Agency and a Financial Stability Council; provides for for the dismantling large, failing financial institutions,  and introduces new regulations for the regulation for  mortgages, credit rating agencies, hedge funds and private equity companies and trading in derivatives.
 
===Proposals for reform===
 
====Overview====
 
As instructed by the [[London Summit]], the  [[Financial Stability Board]] issued a framework for strengthening adherence  to international financial standards<ref>[http://www.financialstabilityboard.org/publications/r_100109a.pdf ''Framework for Strengthening Adherence to International Standards'', Financial Stability Board, 9 January 2010]</ref>.
 
====G20 summit proposals====
The explanatory note on the subject following the [[London Summit]] included the following diagnosis:
<blockquote>While market participants were unable to understand the nature of the risks they were exposed to, the regulatory system allowed them to increase leverage dramatically in the run up to the crisis.  The tendency of the financial sector to over-expand during up swings was exacerbated by a number of factors:  over reliance on Credit Ratings Agencies (CRAs) assessments of the credit risk and potential CRA conflicts of interest, inadequate accounting standards and capital requirements that served to reinforce rather than dampen financial market over expansion, and remuneration policies that encouraged excessive leveraging and risk-taking.</blockquote>
 
====The Volcker Rule====
At a press conference on January 21st 2010, President Obama announced that
: "Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.  If financial firms want to trade for profit, that's something they're free to do.  Indeed, doing so –- responsibly –- is a good thing for the markets and the economy.  But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people. In addition, as part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system.  There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank.  The same principle should apply to wider forms of funding employed by large financial institutions in today's economy."<ref>[http://www.whitehouse.gov/the-press-office/remarks-president-financial-reform ''Remarks by the President on Financial Reform'', Office of the Press Secretary, The White House, Jan 21 2010]</ref>.

Latest revision as of 03:28, 22 November 2023


The account of this former contributor was not re-activated after the server upgrade of March 2022.


Index and Glossary

There is an index to the topics dealt with in the economics articles here, and a glossary of economic terms here.

See also the index to the politics articles .

methodology

"The European Union is something ... 
very precious, not only for us in Europe, but also for the rest of the world. Because the European Union is, in fact, the result of a project for peace that brought together nations emerging from the ruins of the Second World War. It was the European Union that united them in peace around the values of respect for human dignity, freedom, democracy, justice, rule of law and respect for human rights."
Merci Olsson, of Nobel Med, congratulating President Barroso on the award of The Nobel Peace Prize t the European Union, 12 October 2012.
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