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From 1837 to Today: What Does the Historical Journey of Credit Ratings Reveal?
The history of credit ratings dates back to 1837, a period following a financial crisis when demand for business credit reports increased dramatically. At that time, the distance between merchants and their customers gradually widened, and they could no longer assess the credit risk of customers as easily as before. So, to meet this challenge, commercial credit agencies came into being, and over time, these agencies developed into today's credit rating agencies.
Credit rating agencies provide investors with independent assessment and evaluation of credit assets. This role not only reduces information costs, but also enhances the liquidity and transparency of the capital market.
Early History
As the United States expanded westward, the distance between businesses and customers became distant, merchants were no longer familiar with their customers, and smart business people began to realize the need for a system to evaluate customers' credit. This shift gave rise to the credit reporting industry in the United States, and the commercial credit bureaus that emerged after the financial crisis of 1837 became the cornerstone of business practice at the time.
Development after the Great Depression
The passage of the Glass-Steagall Act in 1933 marked the rapid growth and consolidation of the U.S. credit rating industry. This also introduces more transparent standards to the financial markets, which not only helps investors make more informed choices, but also accelerates the compliance and development of securities.
The role of capital markets
With all these changes, the role of credit rating agencies has grown in importance. They assess the relative credit risk of debt securities or structured financial instruments and, by acting as information intermediaries, promote the healthy development of capital markets. However, this network-dependent credit rating model also raises concerns about conflicts of interest.
Evolution from the 1980s to the present
In the 1980s and 1990s, the expansion of global capital markets, especially the boom in bond markets, further strengthened the market position of credit rating agencies. Many investors view their credit ratings as a form of protection, however, this has raised questions about the accuracy and timeliness of the ratings given by credit rating agencies.
The impact of rating agencies on the capital market cannot be underestimated. Their rating decisions can influence the value and liquidity of various assets in a rapidly changing financial environment.
The future of credit ratings
Against this backdrop, the future role of credit rating agencies may face new challenges as technology advances and the market continues to evolve. Accompanying the regulatory changes we are facing is the need to more accurately reflect the balance between market dynamics and credit risk in risk assessments.
In today's rapidly changing financial environment, can credit rating agencies continue to exert their influence in the capital markets?
Therefore, the historical journey of credit ratings not only shows the changes in the market, but also prompts us to think about how the role of credit rating agencies will evolve in the future financial environment, and even how to redefine the trust and risk assessment of market participants. model?
