Taken together, these regulatory rules meant that the judgments of credit rating agencies became of central importance in bond markets. Banks and many other fifi nancial institutions could satisfy the safety requirements of their regulators by just heeding the ratings, rather than their own evaluations of the risks of the bonds. Because these regulated fifi nancial institutions were such important participants in the bond market, other players in the market—both buyers and sellers—needed to pay particular attention to the bond raters’ pronouncements as well. The irony of the regulators’ reliance on the judgments of credit rating agencies is powerfully revealed by a line in Standard & Poor’s standard.
