International vs. Local Credit Ratings for Structured Products: The Case of Brazilian ABSs

Abstract

This article documents the growing market share of the Brazilian credit rating agencies (CRAs) versus the big three in rating Brazilian ABS securities (FIDC). These agencies have a much lower price, and a simple model suggests that their ratings are not of lower quality than those of foreign CRAs. These results follow from an empirical analysis of ratings on 281 FDICs covering a 62-month period from January 2012 to February 2017. This unique dataset includes all ratings assigned by foreign and local rating agencies. Rating inflation and the incentives for both types of agencies are discussed as well.