The Reciprocal Oversight Problem

Author:Jeffrey Manns
Position:Associate Professor, George Washington University Law School
Pages:1619-1671
SUMMARY

Sovereign ratings are designed to mitigate investors' risk exposure by highlighting the fiscal condition of governments. The problem is that sovereign ratings entail reciprocal oversight of rating agencies and sovereign governments—which raises conflicts of interest and, ironically, creates incentives for distorted risk assessments. Private rating agencies hold sovereign governments accountable by assessing their risk exposure, while sovereign governments hold rating agencies accountable through regulation. Both sovereign governments and rating... (see full summary)


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