Norbert Gaillard

Consistency and Performance of Sovereign Ratings During the Interwar Years

This chapter provides a comparison of sovereign ratings issued by Fitch, Moody’s, Poor’s, and Standard Statistics during the interwar years. The objective is to assess the quality of ratings assigned by these four CRAs by focusing on their ability to anticipate defaults.

Sovereign Rating Methodologies: From Theory to Practice

This chapter opens the “black box” of leading CRAs’ sovereign rating methodologies. Because only Moody’s provided details about its rating criteria during the interwar years (see Chap. 5), the scope of this analysis is restricted to the “modern era” – that is, the period 1986–2010.

The Limits of Sovereign Ratings in Light of the Greek Debt Crisis of 2009–2010

This chapter explains why the CRAs failed to anticipate the Greek debt crisis of 2009–2010 and maintained views that diverged from the market’s during the crisis. Section 10.1 presents a review of the literature. Section 10.2 compares Fitch, Moody’s, and SP second, the use of ratings in regulatory capital standards, which served to inflate investment-grade sovereign ratings. Section 10.4 concludes.

How Are Sovereign Ratings Assigned

This chapter describes the rating process and emphasizes that CRAs have always used an analyst-driven approach to assign sovereign ratings.

Moody’s Sovereign Ratings: 1918–1939 and 1986–2006 Compared

This chapter analyzes the determinants of sovereign ratings in two different periods. It specifically focuses on ratings issued by Moody’s during the interwar years and today (1986–2006), two periods characterized by intense sovereign rating activity. The key finding is that although the regulatory framework and the rating industry are clearly different in the two periods – as the previous chapters showed – the determinants of Moody’s sovereign ratings have remained the same.

The Booms and Busts of the Sovereign Rating Activity

In previous centuries, sovereigns often went bankrupt. For example, Spain defaulted three times during the Golden Century; it defaulted seven more times in the seventeenth, eighteenth, and nineteenth centuries. France defaulted eight times between 1500 and 1800. In the nineteenth century, Austria-Hungary and Prussia defaulted five times. These defaults, which involved both colonial and continental powers, show how difficult it has been to assess sovereign creditworthiness (see Reinhart and Rogoff 2009; Suter and Stamm 1992; Winkler 1933; Wynne 1951 for an exhaustive view of sovereign defaults occurred before the twentieth century).