Discussion

Each of these three papers evaluates how external analysts can help an institution assess the condition of its counterparties. The Smith-Walter paper (Chapter 12, “Rating Agencies: Is There an Agency Issue?”) and the White paper (Chapter 2, “The Credit Rating Industry: An Industrial Organization Analysis”) reach dramatically different conclusions about essential features of the credit rating process. These differences have extremely important implications for on-going revisions to the 1988 Basel Accord on bank capital regulation. The Barron-Staten paper (“The Value of Comprehensive Credit Reports: Lessons from the United States Experience”) stands Somewhat apart from the other two, so I will treat it first.1