Rating Oligopoly Persists

“The EU requirements for providers of credit ratings have not broken the dominance of the three big agencies S&P, Moody’s and Fitch”, says a story published in Germany’s only stock exchange daily, Börsen-Zeitung. in Frankfurt on October 28, 2021. The author, Detlef Fechtner, reports on a speech deliverd by Steffen Kern, Chief Economist and Head of Risk Analysis at the EU’s financial market regulatory and supervisory authority ESMA, in Paris (France).

According to his presentation, the EU requirements for providers of credit ratings have not broken the dominance of the three big agencies S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. “Hardly anything has changed in the past five years,” reported Steffen Kern on the occasion of the symposium of the Center for Financial Studies and the Institute for Banking and Financial History in cooperation with Moody’s. As Kern emphasized, “a more even distribution of market shares would be desirable”.

Kern recalled that the market share of the Big 3 – the two heavyweights S&P and Moody’s as well as number 3 Fitch by far – was 92% six years ago and is now 91%. The figures show that the many small rating agencies fail to put competitive pressure on the trio – despite regulatory support. The EU regulation from 2013 stipulates that issuers who have at least two ratings created should “consider” commissioning a small agency.

His findings show that there are apparently no market forces that would cause the leading agencies to be replaced. The often invoked “failure” of these rating agencies during the financial crisis did not lastingly break the trust in their judgments.