AbstractThis paper examines whether credit rating agencies applied consistent rating standards to US corporate bonds in the periods surrounding the 2008 financial crisis. Based on estimates of issuing firms' credit quality from a structural model, I find that rating standards are in fact procyclical: ratings are stricter during an economic downturn than during an economic expansion. As a result, firms receive overly pessimistic ratings in a recession, relative to during an expansion. I further show that a procyclical rating policy amplifies the variation in corporate credit spreads, accounting for, on average, 11% of the increase in spreads during a recession. In the cross‐section, firms with a higher rollover rate of debt, fewer alternative channels to convey their credit quality to the market, and firms with businesses that are more sensitive to economic cycles are more affected by the procyclical rating policy.