Resilient blunderers: why is the authority of rating agencies so persistent?

Andreas Kruck (Ludwig-Maximilians-University Munich)
Andreas Kruck (Ludwig-Maximilians-University Munich)

By Andreas Kruck

More recent accounts of credit rating agencies (CRAs) have largely been stories of failure. Nonetheless, CRAs continue to co-determine access to capital markets and costs of borrowing. Investors still follow CRAs’ standard of creditworthiness, and even powerful states zealously seek to preserve their top ratings. How can that be? Why is the authority of CRAs so resilient even in the face of recurrent, costly and widely recognized rating fiascos? In “Resilient Blunderers: Credit Rating Fiascos and Rating Agencies’ Institutionalized Status as Private Authorities”, I make a historical institutionalist argument to resolve this puzzle: Flawed public policy choices in the past and non-intended institutional dynamics have spawned later regulatory dilemmas culminating in the paradoxical outcome that CRAs’ mistakes have fostered a progressive institutionalization rather than a down-grade of their role as private governors. Read my contribution to the JEPP Special Issue on “Fiascos in Public Policy and Foreign Policy” to learn more about a particularly perplexing instance of path-dependent post-crisis reform and its broader lessons for (non-)learning from failures committed by private governors.