credit rating agencies
Bond rating and the establishment of formal CRAs began in 1909 when John Moody began rating US railroad bonds, soon expanding to utility and industrial bonds. Poor's Publishing Company followed in 1916 and Fitch Publishing Company in 1924. The business was characterised by the investor pays model, where investors bought reports from the CRAs containing their ratings. This changed in 1970, for two reasons. First, with the advent of the photocopier free riding became commonplace and CRAs found it difficult to sustain their business (White, 2002) Second, in 1970 Penn Central defaulted on its commercial paper obligations, creating vast mistrust among investors and a large demand by issuers for certification. The business thus changed to an issuers pay model (Cantor and Packer, 1995) In 1975, the Securities and Exchange Commission (SEC) created the Nationally Recognized Statistical Rating Organization (NRSRO) category to designate credit ratings agencies whose ratings were recognised as being valuable for investment decisions. Standard Poor's, Moody's and Fitch were given this designation immediately, and four other firms attained it in the following 17 years. By 2000, however, mergers returned the number of NRSROs to the big three. The SEC gave out a fourth NRSRO designation in 2003 (Dominion) a fifth in 2005 (A.M. Best) and in response to congressional legislation promoting transparency and entry in 2006 gave out three more designations (White, 2010) All of these new NRSROs, however, remain very small players in the bond and structured finance businesses.