Literature
The impact of regulatory changes on rating behaviour
Abstract
- Abstract
We examine rating behaviour after the introduction of new regulations regarding Credit Rating
Agencies (CRAs) in the European securitisation market. - There is empirical evidence of rating catering in the securitisation market in the pre-GFC period (He et al.,
2012; Efing and Hau, 2015). - Competition among
CRAs could diminish ratings quality (Golan, Parlour, and Rajan, 2011) and promotes rating shopping by
issuers resulting in rating inflation (Bolton et al., 2012). - This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market. - In 2011, in addition to the creation of
European Securities and Markets Authority (ESMA), a regulatory and supervisory body for CRAs was
introduced. - We examine how rating behaviours have changed in the European securitisation market after the
introduction of these new regulations. - We utilise the existence of multiple ratings and rating agreements between
CRAs to identify the existence of rating shopping and rating catering, respectively (Griffin et al., 2013; He
et al., 2012; 2016). - We find that the regulatory changes have been effective in tackling conflicts of interest between issuers
and CRAs in the structured finance market. - Rating catering, which is a direct consequence of issuer and
CRA collusion, seems to have disappeared after the introduction of these regulations. - There is empirical evidence of rating catering in the securitisation market in
the pre-GFC period (He et al., 2012; Efing and Hau, 2015). - Competition among CRAs could diminish ratings quality (Golan, Parlour,
and Rajan, 2011) and promotes rating shopping by issuers resulting in rating inflation (Bolton et
al., 2012). - This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market. - In 2011, in addition
to the creation of European Securities and Markets Authority (ESMA), a regulatory and
supervisory body for CRAs was introduced. - We find that the regulatory changes have been effective in tackling conflicts of interest
between issuers and CRAs in the structured finance market. - Rating catering, which is a direct
consequence of issuer and CRA collusion, seems to have disappeared after the introduction of
these regulations. - Investors who previously demanded higher spreads for rating agreements for a
multiple rated tranche, did not consider the effect of rating harmony as a risk in the post-GFC
period. - Regarding rating shopping, we find that the effectiveness of the changes has been limited,
potentially for two reasons. - Additionally, we also find that rating over-reliance might still be an issue, especially
Rating catering is a broad term and it can involve rating shopping. - They re-examine the rating shopping and rating
catering phenomena in the US market by looking at the post-crisis period between 2009 and 2013. - Using 622 CDO tranches, they also observe the existence of rating shopping and the diminishing
of the rating catering. - Firstly, our main focus is the EU?s CRA Regulation and its effectiveness in reducing
rating inflation and rating over-reliance. - To the best of our knowledge, this paper is the first to
examine the effectiveness of the EU?s CRA regulatory changes on the investors? perception of
rating inflation in the European ABS market. - Hence, the coverage and quality of our dataset constitutes significant addition
to the literature and allows us to test the rating shopping and rating catering more authoritatively. - The following section reviews the literature
on securitisation concerning CRAs and conflicts of interest, and outlines the regulatory changes
introduced in the post-GFC period. - Firstly, ratings became ever more important as the Securities and
Exchange Commission (SEC) 5 began heavily relying on CRA assessments for regulatory purposes
(i.e. - the investment mandates that highlight rating agencies as the main benchmark for investment
eligibility) (SEC, 2008; Kisgen and Strahan, 2010; Bolton et al., 2012). - issuers) as one of the main explanations for the rating inflation (He et al., 2011; 2012; Bolton
et al., 2012; Efing and Hau, 2015). - Bolton et al., (2012) demonstrate that competition
promotes rating shopping by issuers, leading to rating inflation. - The last phase, CRA III, was implemented in mid-2013 and involves an additional
set of measures on reducing transparency and rating over-reliance. - As mentioned above, rating inflation can be caused by rating shopping
In order to be eligible to use the STS classification, main parties (i.e. - The higher the difference in the number of ratings for a
given ABS tranche, the greater the risk of rating shopping. - Alternatively, the impact of the new
regulations could be limited when it comes to reducing rating shopping. - This is because, firstly,
the conflict of interest between securitisation parties is not necessarily the sole cause for the
occurrence of rating shopping. - L is a set of variables (Multiple ratings, CRA reported, Rating agreement) that
we utilise interchangeably to capture the rating shopping and rating catering behaviour. - Hence, issuers are incentivised to report the highest possible rating and
ensure each additional rating matches the desired level. - All in all, our results suggest that
the new stricter regulatory measures have been effective in tackling conflicts of interest and
reducing rating inflation caused by rating catering. - Self-selection might be a concern in analysing the impact of the
new measures and investors? response with regard to the rating inflation. - This
result is in line with the earlier findings suggesting that regulatory changes have reduced investors?
suspicion of rating inflation and increased trust of CRAs. - Conclusion
Several regulatory changes were introduced in Europe following the GFC aimed at tackling
conflicts of interest between issuers and CRAs in the ABS market. - Utilising a sample of 12,469
ABS issued between 1998 and 2018 in the European market, this paper examined whether these
changes have had any impact on rating inflations caused by rating shopping and rating catering
phenomena. - We find that the
effectiveness of the changes has been more limited on rating shopping potentially for two reasons. - Tranche Credit Rating is the rating reported for a tranche at launch.
Business as usual: bank climate commitments, lending, and engagement
Consumer participation in the credit market during the COVID-19 pandemic and beyond
We find that credit demand is highest when
- We find that credit demand is highest when
the first lockdown ends and it drops when supportive monetary compensation schemes are implemented. - Credit is more likely to be
accepted under favourable borrowing conditions and after the approval of national recovery plans. - We also find
that demographic, economic factors, perceptions and expectations are associated with the demand for credit and
the credit grant. - First, it adds to a rapidly growing literature on household
borrowing behaviour during the COVID-19 pandemic; see, for example, Ho et al. - We provide evidence that credit applications and credit acceptances display a different pattern over
time. - Credit is more likely to be accepted under favourable borrowing conditions and after the
approval of national recovery plans. - In almost all countries
households are significantly less likely to apply and to get their credit approved than in Germany. - In line with literature, we show that
demographic and economic factors affect the probability for credit applications and credit approval. - In addition,
the paper shows that consumer perceptions and expectations matter when they decide to apply for credit. - Introduction
The participation of households in the credit market receives wide attention in the consumer finance literature
because consumer credit enters the monetary policy transmission mechanism through the so-called ?credit
channel?: changes in credit demand and supply have an effect on consumers' spending and investment, which in
turn affect economic growth. - We use microdata from the ECB?s Consumer Expectations Survey (hereinafter CES), a survey that
measures consumer expectations and behaviour in the euro area. - Its panel dimension allows for an assessment of
how consumer behaviour changes over time and how consumers respond to critical economic shocks. - This way we can gauge how credit applications and credit acceptances change under different, almost
opposite, borrowing conditions. - We also distinguish between the demand for long-term secured loans (mortgages) and for short-term
uncollateralized loans (consumer loans). - ECB Working Paper Series No 2922
3
We use probit models to estimate the probability of the consumer to apply for credit and the credit being granted.
- The rate peaks in 2020Q3 which reflects the rebound in the demand for loans when the first lockdown ended.
- In almost all countries households are significantly less likely
to apply and to get their credit approved than in Germany. - However,
when it comes to credit acceptance, we observe that the two groups of households are more similar. - Finally, we find some heterogeneity with respect to the type of credit, particularly between secured and unsecured
debt. - The demand for
consumer credit is insignificant for liquid households and decreases significantly for constrained households in
the last two quarters of our timespan. - The first consists of a recently growing literature which
explores consumer behaviour in the credit market during the COVID-19 pandemic, mostly in the United States. - Sandler and Ricks (2020) show that consumers did not use credit card debt for financial liquidity in the early stage
of the COVID-19 pandemic. - (2020) report that credit card applications and new mortgage loans
declined during the first months of the pandemic in regions with more unemployment insurance claims. - Lu and
Van der Klaauw (2021) show that there was a sharp drop in consumer credit demand, especially for credit cards. - (2022) document that there was a substantial decrease in the usage of credit cards and home equity lines
of credit by Canadian consumers. - Our paper is also consonant with studies on the association between financial and demographic factors and
consumers? participation in the credit market as well as on the demand for specific types of credit. - January 2020 ? October 2020 - The two main events are the outbreak of the COVID-19 pandemic and the
consequential lockdowns in the euro area. - 4 If the
respondent has applied for more than one type of credit, she is asked to refer to the most recent credit application. - Between 2021Q3 and 2022Q3 the acceptance
rate stays above the average values, mirroring the easing of credit standards for consumer credit and other lending
to households during this period. - Second, we can investigate the presence of nonlinearities in how liquidity and the credit type interact in explaining credit applications.
- (2023) ? who show that in the United States the local pandemic severity had a strong
negative effect on credit card spending early in the pandemic, which diminished over time. - First, we select mortgages and consumer credit as the two mostly reported categories for secured and
13
The full estimation results are reported in Table 3.
- The right-hand side panel of Figure 6 shows that the demand for consumer credit is insignificant for both liquid
and illiquid households. - It also shows that
subjective perceptions of credit access, financial concerns and expectations on interest rates matter for the demand
for credit. - In Bertola, G., Disney
R., and Grant, C. (eds) The Economics of Consumer Credit, Cambridge MA, MIT Press. - Horvath, A., Kay, B. and Wix, C. (2023) The COVID-19 shock and consumer credit: Evidence from credit card
data. - Magri, S. (2007) Italian households? debt: The participation to the debt market and the size of the loan.
Shocked to the core: a new model to understand euro area inflation
The pandemic's disruption of global supply chains and the spike in natural gas prices following Russia’s invasion of Ukraine were significant drivers of surging inflation.
- The pandemic's disruption of global supply chains and the spike in natural gas prices following Russia’s invasion of Ukraine were significant drivers of surging inflation.
- Traditional inflation models often ignore such supply-side shocks, even though they can have a significant and persistent impact on core inflation in the euro area (as measured by rates of change in the Harmonised Index of Consumer Prices excluding the energy and food components).
Ancient scrolls are being ‘read’ by machine learning — with human knowledge to detect language and make sense of them
Using a non-invasive method that harnesses machine learning, an international trio of scholars retrieved 15 columns of ancient Greek text from within a carbonized papyrus from Herculaneum, a seaside Roman town eight kilometres southeast of Naples, Italy.
- Using a non-invasive method that harnesses machine learning, an international trio of scholars retrieved 15 columns of ancient Greek text from within a carbonized papyrus from Herculaneum, a seaside Roman town eight kilometres southeast of Naples, Italy.
- The work of reading and analyzing the new Greek and Latin texts recovered from the papyri will fall to human beings.
Buried in ash
- Like Pompeii, Herculaneum was buried by the catastrophic eruption of Mount Vesuvius in 79 CE.
- But in 1752, excavation uncovered hundreds of papyrus scrolls in the library of an elaborate Roman villa.
Carbonized papyri
Starved of oxygen, the intense heat of Vesuvius’ pyroclastic flow carbonized (but did not ignite) the papyri. Resembling lumps of coal to the eye, 18th-century excavators did not immediately recognize them as ancient books.
The papyri are so brittle that many were destroyed by early attempts to access their texts. Studying them has therefore always required ingenuity. In 1754, a conservator and priest at the Vatican library devised a machine for slowly unrolling them.
More recently, multispectral photography has dramatically improved their legibility. But until now, a non-invasive method that would leave the scrolls intact remained out of reach. Its development marks a significant breakthrough. McOsker notes there are 659 items in the catalogue listed as “not unrolled,” but some of these are parts of scrolls.
Sparking innovation
- The latter are essential as a reference point (or “control”) for innovative approaches.
- The competition’s design encouraged transparency and collaboration: data published in the pursuit of smaller goals benefited all competitors.
Text mentions music, taste, sight
- A PhD student studying machine learning, an engineer studying computer science and a robotics student were declared
the victors. - According to McOsker, the text they retrieved mentions music twice, as well as the senses of taste and sight.
Hundreds of rolls to be studied
- With hundreds of rolls yet to be studied, the new method of recovering the contents of the Herculaneum papyri is only getting started.
- The production of scans at sufficiently high resolution can’t be done via ordinary equipment, but requires access to a facility with a particle accelerator.
- Via current techniques, which involve a fair bit of manual manipulation, fully segmenting one scroll would cost US$1–5 million.
Critical minds needed
- Their role is to analyze the model’s output of legible ancient Greek — and in so doing determine which approaches are most effective.
- It requires mastery of ancient languages and ideas as well as the puzzle-solver’s ability to fill in the inevitable gaps.
- For the challenge truly to succeed, we’re going to need critical minds as well as whizbang technology.
C. Michael Sampson receives funding from the Social Sciences and Humanities Research Council of Canada for 'the Books of Karanis,' a project that studies fragmentary Greek literature from the Egyptian village Karanis.
Elsevier Health Launches ClinicalKey AI, the Most Advanced Gen AI-Powered Clinical Decision Support Tool for Clinicians
New York, New York--(Newsfile Corp. - February 29, 2024) - Elsevier Health, a global leader in medical information and data analytics, today launched ClinicalKey AI, the first and most advanced clinical decision support tool to be introduced in the US that combines the latest and most trusted medical content with generative artificial intelligence (AI) to help clinicians at the point of care. ClinicalKey AI has been launched in partnership with OpenEvidence, a company specializing in AI for medicine.
- ClinicalKey AI has been launched in partnership with OpenEvidence, a company specializing in AI for medicine.
- Our work with Elsevier Health has allowed us to deliver a superior user experience, combining trusted medical content with advanced AI technology through ClinicalKey AI.
- ClinicalKey AI is built and maintained to deliver the accuracy and relevance of insights that healthcare institutions and physicians expect from Elsevier Health.
- Attendees at the upcoming HIMSS Conference (March 11-15) can experience an in-person demonstration of ClinicalKey AI by visiting Elsevier at Booth 3048.
Invitation to Participate in STOP-PC Clinical Trial
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- The Phase 2/3 trial that you are being asked to participate in will compare OT-101 plus mFOLFORINOX with mFOLFORINOX alone as second line therapy in patients whose cancer progressed.
- The mFOLFIRINOX was chosen as the most well tolerated combination of choice through discussion with regulatory authorities and key opinion leaders.
- We believe this trial will deliver the decisive win against pancreatic cancer," expressed Dr. Vuong Trieu, CEO of Oncotelic.
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ABU DHABI, United Arab Emirates, March 04, 2024 (GLOBE NEWSWIRE) -- The sixth edition of Culture Summit Abu Dhabi opened yesterday in the UAE capital, gathering over 200 speakers and 1,150 participants from 90 countries to identify ways in which culture can transform societies and communities worldwide.
- “You are powerful and have a role to play,” said Jigmi Thinley, prime minister of Bhutan from 2008 to 2013.
- At the Culture Summit, we share one common goal with distinct yet similar views on culture, poetry and art.
- The sixth edition of the Summit will run until 5 March at Manarat Al Saadiyat in Abu Dhabi.
- For more information on Culture Summit Abu Dhabi, its full programme, and sessions available to watch online, please visit www.culturesummitabudhabi.com .
311Literacy Kicks off International Tournament to Inspire Next Generation of Readers
WAYNE, Pa., Feb. 29, 2024 (GLOBE NEWSWIRE) -- 311Literacy , in partnership with Little Bookmates , and Ideal Central Foundation, announce the kickoff of their International 2024 Reading Tournament.
- WAYNE, Pa., Feb. 29, 2024 (GLOBE NEWSWIRE) -- 311Literacy , in partnership with Little Bookmates , and Ideal Central Foundation, announce the kickoff of their International 2024 Reading Tournament.
- The Tournament was created to combat low literacy levels among students, especially within the Hispanic communities of the U.S. and Mexico.
- The contest is positioned to promote and celebrate reading with more than 5000 students at 150 schools across both countries.
- The Reading Tournament launches tomorrow, March 1 when students begin logging reading minutes to determine which country – Mexico or the U.S. – tallies the most reading minutes.