The Bank for International Settlements has published a report from its Committee on the Global Financial System. The Report is entitled Ratings in structured finance: what went wrong and what can be done to address shortcomings?

The report looks at the lessons that have been learnt during the credit crunch on vulnerabilities of ratings of structured finance products (SF products) and provides a number of recommendations to address weaknesses that were identified.

The report is set out as follows:

  • Section 2 highlights the risk factors that are likely to have contributed to the poor rating performance of SF products backed by US subprime mortgages.
  • Section 3 summarises industry views on the recent performance of ratings in SF markets.
  • Section 4 sets out four lessons. Firstly, credit rating information should support, not replace, investor due diligence. Secondly, credit rating agencies (CRAs) should enhance the information underlying SF ratings. Thirdly, better information on the key factors of SF ratings is needed. Fourthly, CRAs should take system-wide risk into account.
  • Section 5 sets out a number of specific recommendations to address weaknesses and improve investor confidence in the rating of SF products.

View Ratings in structured finance: what went wrong and what can be done to address shortcomings?, (PDF 217KB), 4 July 2008