Central Bank of Colombia publishes research on how Big Three credit rating agencies discipline governments

The Central Bank of Colombia has published an academic article examining how sovereign credit ratings can constrain governments by raising borrowing costs and triggering regulatory or mandate-based investment restrictions for institutional investors. The paper highlights Colombia’s split treatment among the “Big Three” agencies, noting that Moody’s keeps the country at investment grade while Standard & Poor’s and Fitch rate it as speculative, which can limit some international funds’ ability to invest in Colombian debt. Authored on a personal basis by board member César Giraldo and Kevin Güiza Molina, the article traces rating agencies’ evolution from private information providers to actors whose opinions can have quasi-regulatory effects, including through the shift from investor-pays to issuer-pays models and the issuance of unsolicited sovereign ratings. It reviews evidence from the 2008 subprime crisis and the 2010–2012 euro area crisis, and points to European Union responses such as the Credit Rating Agencies Regulation, limits and scheduling requirements for sovereign rating reviews, and the move to centralised supervision by the European Securities and Markets Authority from 2011. The article argues that reducing vulnerability in economies without reserve currencies requires measures such as strengthening local-currency capital markets, building regional financial backstops, diversifying sources of risk assessment, and reassessing automatic reliance on external ratings in prudential frameworks.