Do structured finance ratings reveal all?
Basle working group seemingly has doubts Ratings in structured finance have been a very sensitive topic for some time now, but a time when Basle II capital standards rely increasingly on ratings, the paper by a Basle working group suggesting structured finance ratings don’t reveal the risk of unexpected losses adequately enough might sound different, if not strange. A Basle working paper titled “The Role of Ratings in Structured Finance: Issues and Implications” goes into both the reliability or otherwise of the ratings, as also the risks that central banks and regulators need to be concerned about. The working group, based on a survey of the market participants concludes that the market participants are aware of the limitations of ratings. The reliance on the rating agency’s assessment of the pool is inversely proportionate to the sophistication of the investor. “Despite the “value added” by the rating agencies, market participants need to be aware of the limitations of ratings. This
