Comparison of credibility (accuracy) of S&P and Moody's ratings before Literature review

Comparison of credibility (accuracy) of S&P and Moody's ratings before and after the US financial crisis - Literature review Example These rating systems have also influenced the U.S capital markets by enabling the U.S financial markets to examine the credit risks. S&P and Moody’s ratings play significant roles in the capital markets; thus, the rating agencies employ them in measuring the expected financial losses (Langohr and Langohr, 2008). This is crucial because they enable the financial market to respond to financial insecurity or risks. This is through establishing regulatory approaches that protect the financial markets from incurring losses. S&P and Moody frequently provide financial analysis to the analysts and issues standard public financial statement of the U.S banks on credit conditions. They also carry out credit ratings in order to offer investors with adequate information; hence enabling them to overcome credit crisis. Moreover, they have influenced the US financial market by enabling them to make financial analysis in order to determine the strength of banking institutions. They have enable d them to split bonds and rate the financial institutions against each other in order to determine their performance level. ... Thus, through S&P and Moody rating services, the U.S financial institutions have enabled to improve their business performance level. Literature Review on the Methodology Changes of S&P and Moody's After All the Criticism It Has Faced On Their In Credibility and Accuracy of Their Published Ratings Varied literature have attempted to reveal the methodology changes of S&P and Moody’s after they faced varied criticism on their credibility and accuracy issues. They have made great efforts of becoming more cautious in order to recover their reputations after the criticism during the recent financial crisis. The S&P and Moody's, as well as, other credit rating agencies have been a subject of controversy; thus, they have been criticized for not being accurate and credible. These agencies faced severe criticism especially during the recent rise of gasoline in the U.S that contributed to a global financial crisis (Eccleston, 2013. However, the credit rating agencies have made significa nt attempts of making changes in rating system; thus, they have focused on creditworthiness, which has become the key aspects in the financial markets. S &P have attempted to implement varied methodologies and this has changed drastically after the 2007 to 2008 global financial crisis. Before the crisis Moody's employed RiskCalc model for estimating private industries default risks. However, the current regulatory approach, which is characterized by capital ratios, stress tests among other methodologies makes it necessary in rating activities. Anand and Subramanian (2013) reveal that S&P and Moody's have made significant efforts of responding to criticism by increasing the regulatory use of ratings in order to reduce financial risks. This regulatory