Nationally Recognized Statistical Rating Organization

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A credit rating agency is a firm that offers its opinion on the credit quality of an entity and its financial obligations such as preferred stock, long-term and short-term debt instruments. Ten credit rating agencies are registered with the Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations (NRSROs).[1] Achieving NRSRO status generally means that an agency is deemed "credible" by the commission, and that ratings issued by the agency are appropriately used as benchmarks in federal and state legislation, rules issued by financial and other regulators, foreign regulatory schemes, and private financial contracts. The registered NRSROs are:

Each NRSRO has its own credit rating system but, in general, ratings run from "Triple A," meaning an extremely low risk of meeting future commitments, to "D" meaning the company has defaulted on its financial commitments. [2] Typically, a rating of "BB" or higher is considered "investment-grade;" lower ratings are considered "non-investment grade," also known as high-yield bonds, or "junk bonds."

NRSROs and the Dodd-Frank Act

Subsequent to the financial crisis of 2008, credit ratings agencies such as Standard & Poor's, Moody's and Fitch came under fire for having assigned top ratings to securities backed by subprime debt obligations. The debate centered on the ratings agencies' compensation models as creating an inherent conflict of interest.[3] Among the mandates of Title IX of the Dodd-Frank Act is a requirement that references to or reliance upon credit ratings shall be removed from existing regulations, and replaced with alternative measures of creditworthiness. For more information, visit the Credit Ratings Regulation page on MarketsReformWiki.

  1. Credit Rating Agencies—NRSROs. Securities and Exchange Commission.
  2. Credit Ratings Definitions & FAQs. Standard&Poor's.
  3. Credit rating execs to face congressional heat. Reuters.