Tuesday, August 10, 2010

Rating Performance and Agency Incentives of Structured Finance Transactions

Daniel Roesch and Harald Scheule

Abstract: The mismatch between credit ratings o fstructured finance transactions and their true risks has been a source of the Global Financial Crisis which manifested in criticism of models and techniques applied by credit rating agencies (CRA). This paper provides an empirical study which assesses the historical performance of credit ratings for structured finance transactions and finds that CRAs do not include all factors explaining securitization impairment risk. In addition, CRA ratings for selected asset categories underestimate risk in origination years when the fee revenue is high.

Download here: papers.ssrn.com/sol3/papers.cfm?abstract_id=1646906

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