The Liability of Credit Rating Agencies: A Contractual Solution
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There is a widespread consensus that Credit Rating Agencies have systematically inflated their ratings. In this paper, we analyze how the European regulator has addressed this issue. Specific attention is paid to the legislative framework introduced by the Reg. (Ec) no. 1060/2009, the Reg. (Eu) no. 513/2011, and the Reg. (Eu) no. 462/2013. We argue that these regulations are inadequate to provide Cras with the correct incentives. In this vein, we suggest the introduction of a mitigated version of strict liability rule. We develop specific mechanisms to protect Cras from systemic risk, to limit their liability, and to allow them to choose how much to «bet» on their own predictions.