Single Article: The Regulatory Use of Credit Ratings in Germany and the US: A Resource Dependence View on the Transfer of (Quasi-)Regulatory Authority
Author: ANDREAS KRUCK
Published in GPS, Vol. 9 No. 1
In the decades before the global financial crisis public regulators in the US but also in Continental Europe increasingly used private credit ratings as risk measures in financial regulation, thus granting credit rating agencies (CRAs) (quasi-)regulatory authority in financial market governance. The article draws on resource dependence theory – supplemented by insights from principal-agent theory and the varieties of capitalism approach – to explain common trends as well as differences in the regulatory use of credit ratings in the US and Germany before the global financial crisis. I argue that, through the regulatory use of credit ratings, state actors delegated (quasi-)regulatory authority to private expert agents, i.e. CRAs, because public regulators lacked essential analytical resources to cope with financial market uncertainty. Varying degrees of US and German regulators’ dependence on CRAs’ analytical resources led to variations in the regulatory use of CRAs’ ratings. The extent of public dependence on private expertise was, in turn, conditioned by different macroinstitutional settings, i.e. Anglo-Saxon and “Rhenish” varieties of capitalism. The plausibility of these theoretical propositions, which could be useful for the analysis of privatization process-es far beyond the specific case of CRAs, is probed, firstly, in an inter-temporal and interregional analysis of the inclusion of credit ratings into financial regulation and, secondly, by re-tracing German and US negotiating positions in the Basel II process.