Currently, the CRA market is highly concentrated. According to a paper published last year by a group of academics in the Journal of Accounting and Economics, titled “Market Power and Credit Rating Standards: Global Evidence”, S&P and Moody’s accounted for over 90% of the market share in the US in 2019. Outside the US where there are domestic CRAs, the market shares of S&P and Moody’s are still significant at around 70%.
Credit ratings have been an integral part of fixed income markets for over a century. The big international Credit Rating Agencies (CRA) was birthed in the early 1900s, a period that was marked by rapid growth of railway infrastructure in the US. Such infrastructure assets were financed by bonds, with investors relying on information provided by CRAs.
Endorsed by regulators, CRAs have become entrenched in fixed income markets over time, becoming important financial intermediaries that disseminate independent opinions about the creditworthiness of issuers. For example, asset managers may be required to use credit ratings provided by CRAs as part of their investment decisions.
