Financial Risk Manager Part 1
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A risk manager at a midsize bank is assessing the bank's methods for measuring credit risk in its loan portfolio. This evaluation involves examining the advantages and disadvantages of using credit ratings provided by external rating agencies. Upon reflecting on this process, what should the manager conclude as a disadvantage of depending on agency ratings for assessing credit risk?
A
Rating agencies only produce ratings for companies whose debt instruments are publicly traded.
B
Agency ratings are only reassessed when a company issues new debt or experiences a major credit-related event.
C
Financial institutions must pay fees for the rating services provided by rating agencies but these services are less affordable for smaller firms given their lower revenues.
D
Agency ratings of companies tend to be based on a narrow analysis limited to historical and forecasted financial information.