Stakes Sensitivity and Credit Rating: A New Challenge for Regulators

Journal of Business Ethics 169 (1):169-179 (2019)
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The ethical practices of credit rating agencies, particularly following the 2008 financial crisis, have been subject to extensive analysis by economists, ethicists, and policymakers. We raise a novel issue facing CRAs that has to do with a problem concerning the transmission of epistemic status of ratings from CRAs to the beneficiaries of the ratings, and use it to provide a new challenge for regulators. Building on recent work in philosophy, we argue that since CRAs have different stakes than the beneficiaries of the ratings in the ratings being accurate, what counts as knowledge concerning credit risk for a CRA may not count as knowledge for the beneficiary. Further, as it stands, many institutional investors are bound by law to make some of their investment decisions dependent on the ratings of officially recognized CRAs. We argue that the observation that the epistemic status of ratings does not transmit from CRAs to beneficiaries makes salient a new challenge for those who think current regulation regarding the CRAs is prudentially justified, namely, to show that the harm caused by acting on a rating that does not have epistemic status for beneficiaries is compensated by the benefit from them acting on a CRA rating that does have epistemic status for the CRA. Unlike most other commentators, therefore, we offer a defeasible reason to drop references to CRAs in prudential regulation of the financial industry.



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Author Profiles

Boudewijn de Bruin
University of Groningen
Anthony Booth
University of Sussex

Citations of this work

philosophy of money and finance.Boudewijn De Bruin, Lisa Maria Herzog, Martin O'Neill & Joakim Sandberg - 2018 - In Edward Zalta (ed.), Stanford Encyclopedia of Philosophy. Palo Alto: Metaphysics Research Lab, Stanford University.

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References found in this work

Knowledge and its limits.Timothy Williamson - 2000 - New York: Oxford University Press.
Knowledge and lotteries.John Hawthorne - 2004 - New York: Oxford University Press.
Knowledge and practical interests.Jason Stanley - 2005 - New York: Oxford University Press.
Knowledge in an uncertain world.Jeremy Fantl & Matthew McGrath - 2009 - New York: Oxford University Press. Edited by Matthew McGrath.
Elusive knowledge.David K. Lewis - 1996 - Australasian Journal of Philosophy 74 (4):549 – 567.

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