Ratings Competition in the CMBS Market




  • The views expressed here are those of the authors and do not necessarily reflect the opinions of the Board of Governors or its staff. The authors would like to thank Claire Brennecke for excellent research assistance, as well as seminar participants at the Federal Reserve-JMCB Conference on Regulating Systemic Risk, Bo Becker, two anonymous referees, and the editors for helpful comments and suggestions.


We consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage-backed securities (CMBS) using data from 2002 to 2007. We characterize competition using Fitch's aggregate share of CMBS ratings and a measure of Fitch's deal-specific market share constructed as the probability of Fitch being hired for a specific transaction. Controlling for deal characteristics, we find that subordination levels were lower when Fitch's aggregate and deal-specific market shares were higher, which suggests that ratings competition yielded less stringent ratings when Fitch was a more significant competitor, although this effect dissipates when Fitch's market shares were high.