How Fitch, Moody's, and S&P Came to Rate Nations

Global credit rating agencies Fitch, Moody's, and S&P wield significant influence, evaluating governments, banks, and investors worldwide. The ratings they assign can shape perceptions of a nation's risk and, consequently, affect the cost at which it can borrow money. For Romania, these agencies are particularly important, as all three maintain the country at the lower end of the investment grade category, with negative outlooks.

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They started as intelligence services for investors who didn't know their debtors. Today, Fitch, Moody's, and S&P evaluate governments, banks, and investors worldwide, and the ratings they give can influence the perception of a country's risk and, indirectly, the cost at which it can borrow.

The origins of these influential bodies trace back to the mid-19th century, a period of rapid economic expansion in the United States. As companies, particularly railroads, began issuing substantial amounts of bonds to finance their growth, investors faced a challenge: how to assess the financial health and debt-paying capacity of companies located far away. This need led to the creation of specialized publications that gathered and systematized financial information.

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In just over a century, rating agencies have thus moved from publishing financial information for investors to a much more important role in the functioning of capital markets.

Henry Varnum Poor's 1860 publication of information on U.S. railroads and canals is considered an early precursor to the industry. Poor's Publishing, which later became part of S&P, began issuing credit ratings in 1916. Standard Statistics followed suit in 1922, and the two merged in 1941 to form Standard & Poor's. Moody's emerged in 1909 when John Moody started providing investors with data on railroad bonds, a development the SEC recognizes as the beginning of the modern rating industry.

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For Romania, their importance is even greater as all three major agencies keep the country at the lower limit of the investment grade category, and all three have negative outlooks.

Fitch was founded in 1913 by John Knowles Fitch, Henry P. Clancy, and Fabian Levy. The company initially launched the Fitch Bond Book, a publication offering bond data to investors, and in 1924 introduced its letter-based rating system. The initial goal of these agencies was relatively straightforward: to provide investors with essential financial data.

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When investors no longer knew their debtors.