The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Rating agencies: Capable or culpable?

In front of a US Senate committee, the agencies are indignant while investors claim they are focusing on the wrong signals.

Testimony presented to the US Senate from both sides of the debate made interesting reading for both rating agencies and their detractors at the end of September. The agencies have, not surprisingly, been at pains to remind the market exactly what a rating means, and how seriously they take their job. They have an air of righteous indignation – hardly surprising given the mauling they have been given from all sides. "We had not heard a peep from the investor community before about our sub-prime criteria," grumbles one rater. "It is only when they are trying to keep their jobs because they bought sub-prime that they start complaining."

There is a degree of support for their position. "The rating agencies have received a bum rap in all of this," says an observer. "It is not their job to undertake due diligence on underwriting standards in the mortgage market." But certainly the weight of opinion among market participants that Euromoney spoke to in October was against them – or at least in favour of a substantial reassessment of how the relationship between the agencies and the market works.

Point one

The first point on the charge sheet is the most straightforward; they got their assumptions badly wrong on how the sub-prime mortgage pools backing securitized structures would behave.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree