Rating Performance and Agency Incentives of Structured Finance Transactions

41 Pages Posted: 5 Aug 2009 Last revised: 31 Jan 2010

See all articles by Daniel Roesch

Daniel Roesch

University of Regensburg

Harald (Harry) Scheule

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2009

Abstract

The mismatch between credit ratings of structured 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 fi nds 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.

Keywords: asset-backed security, collateralized debt obligation, economic downturn, fee revenue, forecasting, home equity loans, impairment rate, mortgage-backed security, structured finance rating, Global Financial crisis

JEL Classification: G20, G28, C51

Suggested Citation

Roesch, Daniel and Scheule, Harald, Rating Performance and Agency Incentives of Structured Finance Transactions (November 22, 2009). Finlawmetrics 2010 Conference Paper. Available at SSRN: https://ssrn.com/abstract=1443788 or http://dx.doi.org/10.2139/ssrn.1443788

Daniel Roesch (Contact Author)

University of Regensburg ( email )

Chair of Statistics and Risk Management
Faculty of Business, Economics and BIS
Regensburg, 93040
Germany

HOME PAGE: http://www-risk.ur.de/

Harald Scheule

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://https://www.uts.edu.au/staff/harald.scheule

Financial Research Network ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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