Rating Performance and Agency Incentives of Structured Finance Transactions

Roesch, Daniel; Scheule, Harald (Harry)

doi:10.2139/ssrn.1443788

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Rating Performance and Agency Incentives of Structured Finance Transactions

Finlawmetrics 2010 Conference Paper

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

See all articles by Daniel Roesch

Harald (Harry) Scheule

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

There 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 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.

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: 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