The Normative Power of Credit Rating Agencies

Benoit Frydman examines the normative power wielded by credit rating agencies, particularly Moody's, over states and public institutions within globalizing financial markets. Following deliberate financial deregulation from the 1980s, rating agencies emerged as crucial control points in an unprecedented regulatory apparatus for global credit allocation, with their initially private judgments progressively empowered through regulatory incorporation—including Basel II accords, investment restrictions, and accounting mandates. The article traces how privatization of risk assessment, oligopolistic concentration among three major agencies, and establishment of what Frydman terms a tribunal of opinion operate to enforce agency verdicts through market mechanisms. Paradoxically, regulatory responses designed to constrain agency behavior through transparency and accountability ultimately strengthen and institutionalize their dominant position as norm-setters in global financial governance.