Some claim that ratings agencies have a conflict of interest since:
A)they rate the quality of their own bonds
B)since 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 the firms whose bonds they rate, rather than the investors who rely on their ratings. This creates a conflict of interest as agencies may be incentivized to give high ratings to gain more business from these firms.

Some Claim That Ratings Agencies Have a Conflict of Interest