Civil Liability of Credit Rating Companies – Qualitative Aspects of Damage Assessment from an Economic Viewpoint

Traditionally, credit rating companies (CRCs) seemed to be excluded from rules that lead from corporate negligence to the obligation to compensate claimants for financial damage they suffered due to this complacency. But the most recent, crisis-influenced institutional changes include liability rules for CRCs. So far, the new CRC-liability regime has been considered from the viewpoint of legal science. At the same time, economic science could provide necessary insights for an encompassing evaluation. This paper is dedicated to general and rather qualitative economic considerations and organized as follows: After a short introduction into recent institutional change, characteristics that make for a good liability rule are discussed. Thereafter, the focus is on the mechanism of the current European law for CRCs – and to what extent it complies with those requirements. It is shown that the rule is inaccurate and thus insufficient with respect to several aspects of damage assessment, especially regarding the scope of possible damage cases. Combined with fundamental information problems, this leads to a rather skeptical conclusion concerning the economic sense of the new rule. The paper ends with suggestions for improvement and an impetus for further research