Toward an Understanding: NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts

Journal of Structured Finance, Winter 2009

Posted: 7 Mar 2009

Date Written: Winter 2009

Abstract

This article explains the key differences in the roles of rating agencies with regard to structured finance compared to single-issuer debt, highlights weaknesses in the current recommendations and oversight of the agencies, and concludes with recommendation of a series of discreet changes that would effectively address the most significant weaknesses within the current oversight regime of rating agencies in structured finance, including: recommending that charter-constrained investors own only exchange-traded structured securities, requiring agencies to apply updated models in a timely manner, requiring frequent re-rating of securities relative to original deal assumptions at issuance, reducing liability exemptions for certain structured finance rating practices, creating minimum industry standards for analysts' professional training in structured finance, prohibiting revolving-door practices for rating agency analysts, and requiring agencies to form independent statistical staffs to develop, test, implement, and review models. Over time, these changes most likely would significantly diminish market need for and reliance on official ratings.

Keywords: ratings, nrsro, rmbs, cmbs, iosco, abs, structured finance, structured securities, mortgage backed, subprime, cra, credit ratings

Suggested Citation

Rosner, Joshua, Toward an Understanding: NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts (Winter 2009). Journal of Structured Finance, Winter 2009. Available at SSRN: https://ssrn.com/abstract=1354608

Joshua Rosner (Contact Author)

Graham Fisher & Co. ( email )

New York, NY
United States
917 379-0641 (Phone)

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