Following the Asia crisis of 1997-98, policymakers invested a great deal of energy in designing a new international financial architecture. However many of the policy proposals which have emerged from think tanks and the multilateral agencies have proven unworkable or politically unpalatable. The debate focuses on state-led initiatives. But the assumption that public policy is by definition an output of public institutions is difficult to sustain in an era of global change. This paper considers specialized forms of intelligence-gathering and judgment-determination which seem increasingly important as sources of governance in this era of financial market volatility. These agents - embedded knowledge networks (EKNs) - include the major bond rating agencies, Moody’s Investors Service and Standard and Poor’s, the focus of this paper. The Basel Committee has put forward a serious proposal to reform the existing capital adequacy framework which uses banks' own internal ratings and external bond ratings to calculate bank risk-weighted capital requirements. The paper shows that there are potentially unexpected consequences from using private rating agencies as a substitute for state-based regulation, due to the organizational incentives that shape the ratings industry. Cementing these organizational incentives into the emerging financial architecture will give rise to negative social and economic consequences
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