Some claim that ratings agencies have a conflict of interest since
A) they rate the quality of their own bonds.
B) agencies charge firms for their services rather than investors, they have an incentive to give high ratings to gain business.
C) government began to include bond ratings as part of regulations of mutual funds, banks, and financial firms.
D) they issued many of the mortgages that were later securitized into bonds.

Question

Quizplus · Accepted Answer

Ratings agencies charge fees to the firms they rate, creating the potential for a conflict of interest in which agencies might inflate ratings to please their clients and win future business. This conflict of interest was partially blamed for the 2008 financial crisis, during which mortgage-backed securities received overly optimistic ratings from agencies.

Some Claim That Ratings Agencies Have a Conflict of Interest