[2] The company ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss in the event of default.

[9] Credit rating agencies also play an important role in the laws and regulations of the United States and several other countries, such as those of the European Union.

In October 2010, the Financial Stability Board (FSB) created a set of "principles to reduce reliance" on credit rating agencies in the laws, regulations and market practices of G-20 member countries.

Companies with which Moody's competes in specific areas include investment research company Morningstar, Inc. and publishers of financial information for investors such as Thomson Reuters and Bloomberg L.P.[12] Especially since the early 2000s, Moody's frequently makes its analysts available to journalists, and issues regular public statements on credit conditions.

[13][14] According to Moody's, the purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged".

[10] The publication provided detailed statistics relating to stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities, and food companies.

[17] Moody was forced to sell his business, due to a shortage of capital, when the Panic of 1907 fueled several changes in the markets.

As the market grew beyond that of traditional investment banking institutions, new investors again called for increased transparency, leading to the passage of new, mandatory disclosure laws for issuers, and the creation of the Securities and Exchange Commission (SEC).

[8] In 1962, Moody's Investors Service was bought by Dun & Bradstreet, a firm engaged in the related field of credit reporting, although they continued to operate largely as independent companies.

[24] The end of the Bretton Woods system in 1971 led to the liberalization of financial regulations, and the global expansion of capital markets in the 1970s and 1980s.

Moody's and nine other agencies (later five, due to consolidation) were identified by the SEC as "nationally recognized statistical ratings organizations" (NRSROs) for broker-dealers to use in meeting these requirements.

In November 1999, Moody's announced it would begin identifying which ratings were unsolicited as part of a general move toward greater transparency.

[10] The agency faced a similar complaint in the mid-2000s from Hannover Re, a German insurer that lost $175 million in market value when its bonds were lowered to "junk" status.

[8][41][42] In 2005, unsolicited ratings were at the center of a subpoena by the New York Attorney General's office under Eliot Spitzer, but again no charges were filed.

The intent of the rule is to counteract potential conflicts of interest in the issuer-pays model by ensuring a "broader range of views on the creditworthiness" of a security or instrument.

[8] The SEC recently acknowledged, however, in its September 30, 2011 summary report of its mandatory annual examination of NRSROs that the subscriber-pays model under which Moody's operated prior to adopting the issuer pays model also "presents certain conflicts of interest inherent in the fact that subscribers, on whom the NRSRO relies, have an interest in ratings actions and could exert pressure on the NRSRO for certain outcomes".

[45] Other alleged conflicts of interest, also the subject of a Department of Justice investigation the mid-1990s, raised the question of whether Moody's pressured issuers to use its consulting services upon threat of a lower bond rating.

Thomas McGuire, a former executive vice president, said in 1995 that: "[W]hat's driving us is primarily the issue of preserving our track record.

[48] The 2007–2008 financial crisis led to increased scrutiny to credit rating agencies' assessments of complex structured finance securities.

[51] In its "Conclusions on Chapter 8", the Financial Crisis Inquiry Commission stated: "There was a clear failure of corporate governance at Moody's, which did not ensure the quality of its ratings on tens of thousands of mortgage-backed securities and CDOs.

[54] Some academics and industry observers have argued that the rating agencies' mass downgrades were part of the "perfect storm" of events leading up to the 2007–2008 financial crisis.

In October 2007, Moody's further refined its criteria for originators, "with loss expectations increasing significantly from the highest to the lowest tier".

[59] In April 2013, Moody's, along with Standard & Poor's and Morgan Stanley, settled fourteen lawsuits filed by groups including Abu Dhabi Commercial Bank and King County, Washington.

[61][62] In March 2013 Moody's Investors Service published their report entitled Cash Pile Grows 10% to $1.45 Trillion; Overseas Holdings Continue to Expand in their Global Credit Research series, in which they examined companies they rate in the US non-financial corporate sector (NFCS).