Sowing the Seeds of a Future Crisis: The SEC and the Emergence of the Nationally Recognized Statistical Rating Organization (NRSRO) Category, 1971–1975

Smith, Andrew ORCID: 0000-0002-8589-7608 and Wright, Robert E (2021) Sowing the Seeds of a Future Crisis: The SEC and the Emergence of the Nationally Recognized Statistical Rating Organization (NRSRO) Category, 1971–1975. Business History Review, 95 (4). pp. 1-26.

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Official URL: http://dx.doi.org/10.1017/s0007680521000106

Abstract

<jats:p>Since 2008, academics and policymakers have frequently debated why bond rating agencies such as Moody's, S&P, and Fitch enjoy considerable power and influence. The 2008 financial crisis focused our attention on the bond rating agencies that had previously categorized mortgage-backed securities as investment grade. Scholars have attributed the power enjoyed by the rating agencies to regulations that confer a privileged status on those agencies that are designated as nationally recognized statistical rating organizations (NRSROs) by the U.S. Securities and Exchange Commission (SEC). While these authors mention in passing that the relevant regulation went into effect in 1975, none has conducted archival research to examine why this regulation was introduced at that time. This article is the first historical investigation of the creation of this crucial regulation, which entrenched the concept of the NRSRO in federal securities law. It shows that the SEC mandated the use of NRSRO-created ratings even though SEC officials vigorously debated whether it was wise for the commission to endorse ratings produced by agencies that operate on the basis of the controversial issuer-pay model. This article contributes to our understanding of the SEC's role in the development of the distinctive features of American capitalism.</jats:p>

Item Type:	Article
Uncontrolled Keywords:	Securities and Exchange Commission, bond ratings, securities regulation, political economy
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	20 Sep 2021 09:02
Last Modified:	18 Jan 2023 21:28
DOI:	10.1017/s0007680521000106
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3137385