In this book, you will be introduced to generic best practice principles for a post credit crunch market. First, the book takes a closer look at the reasons why the market froze during the 2007 to 2009 credit crisis. Then you will learn how to use the principles explained here in your generic deal's typical life cycle stages. Throughout, each stage is discussed in detail, from strategy and feasibility, pre-close, at close, and post close. The final section of the book contains a toolbox of references, tables, dictionaries, and resources.
The Independence of Credit Rating Agencies focuses on the institutional and regulatory dynamics of these agencies, asking whether their business models give them enough independence to make viable judgments without risking their own profitability. Few have closely examined the analytical methods of credit rating agencies, even though their decisions can move markets, open or close the doors to capital, and bring down governments. The 2008 financial crisis highlighted their importance and their shortcomings, especially when they misjudged the structured financial products that precipitated the collapse of Bear Stearns and other companies. This book examines the roles played by rating agencies during the financial crisis, illuminating the differences between U.S. and European rating markets, and also considers subjects such as the history of rating agencies and the roles played by smaller agencies to present a well-rounded portrait. - Reports on one of the key causes of the 2008 financial crisis: agencies that failed to understand how to analyze financial products - Describes inherent business model and pricing conflicts that compromise the independence of credit rating agencies - Reveals how rating agencies large and small, regulatory bodies, and vested interests interact in setting fees and policies
Ratings, Rating Agencies and the Global Financial System brings together the research of economists at New York University and the University of Maryland, along with those from the private sector, government bodies, and other universities. The first section of the volume focuses on the historical origins of the credit rating business and its present day industrial organization structure. The second section presents several empirical studies crafted largely around individual firm-level or bank-level data. These studies examine (a) the relationship between ratings and the default and recovery experience of corporate borrowers, (b) the comparability of credit ratings made by domestic and foreign rating agencies, and (c) the usefulness of financial market indicators for rating banks, among other topics. In the third section, the record of sovereign credit ratings in predicting financial crises and the reaction of financial markets to changes in credit ratings is examined. The final section of the volume emphasizes policy issues now facing regulators and credit rating agencies.
Taking position from the recent 2007-2009 financial crisis, Credit Ratings and Market Over-reliance: An International Legal Analysis by Francesco De Pascalis provides an in depth legal and regulatory analysis of the concept of over-reliance in the use of ratings and how regulation facilitates over-reliance is different from mere reliance on credit ratings. Not only does the book provide an incisive doctrinal analysis of the concept of over-reliance, it also considers over-reliance from a comparative and international perspective by reviewing legal and regulatory developments under European Union and US law and how over-reliance has been addressed in international financial regulation.
For all but the most credit-worthy companies, it is more efficient to finance large pools of assets that have predictable behavioral characteristics through non-standard arrangements. These off-balance sheet structures allow credit exposures to be tailored to investor risk, asset class, and an ever-increasing diversity of idiosyncratic needs on the part of issuers and investors. The discipline that addresses these structures, which is called structured finance or securitization, is almost twenty years old, and has become a ubiquitous element of modern financial management. Yet, it has not been systematically covered in a textbook designed for both the school and workplace contexts.Elements of Structured Finance, the text version of a program of instruction in structured finance that the authors have offered at universities, private training programs, and consultancies, fills this void spectacularly. Raynes and Rutledge, two very highly regarded teachers and consultants in the field, bring clarity and logic to an inherently complex and frightening area of finance, using their extensive experience working with many of the top Wall Street securities houses. The book will start with the relatively simple concepts of static valuation models and the benchmark pool, and take the reader through the more esoteric features of dynamic risk analysis, thus serving as both an excellent introduction for the beginner and an essential reference for the professional. In addition to participants in structured finance programs, this book will appeal to structured finance analysts and managers at banks, asset management companies, insurance companies, and a wide variety of other corporations.
Studies credit ratings on subprime and Alt-A mortgage-backed-securities (MBS) deals issued between 2001 and 2007, the period leading up to the subprime crisis. The fraction of highly rated securities in each deal is decreasing in mortgage credit risk; ratings contain useful info. for investors. There was also evidence of significant time variation in risk-adjusted credit ratings, incl. a progressive decline in standards around the MBS market peak between 2005 and mid-2007. Conditional on initial ratings, they observe underperformance (high mortgage defaults and losses and large rating downgrades) among deals with observably higher risk mortgages based on a simple ex ante model and deals with a high fraction of opaque low-documentation loans.
Essay from the year 2008 in the subject Business economics - Investment and Finance, grade: 2,2, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, course: Introduction to Investment Banking, language: English, abstract: “There are two superpowers in the world [...] the United States and Moody’s Bond Rating Service” – Thomas L. Friedman, NY Times The above statement by Thomas L. Friedman accentuates the importance of credit rating agencies (CRAs) in modern financial markets. As the past months have shown, Friedman’s statement has held especially true for the role of CRAs in the structured finance market, where CRAs are currently being made responsible for playing an integral role in the emergence of one of the biggest financial crises of mankind: the subprime crisis. The role and the importance of CRAs in the structured finance market is the central topic of the following paper. To fully understand the impact of this issue on the worldwide financial markets, it is interesting to shed some light onto the dimensions of the structured finance market. The market is of considerable size given that outstanding structured finance securities in the United States amounted to 7.3 trillion US dollars in 2005 (Nomura, 2005) and have now grown to 9 trillion US dollars, which is more than two thirds of the United States GDP of 13.1 trillion US dollars in 2007 (U.S. Bureau of Economic Analysis, BEA, 2007). More-over, these outstanding structured finance securities represent more than 30% of the total outstandings in the U.S. bond markets (Nomura, 2005). As these figure reveal, it is not surprising that complications in the core of the huge market of structured finance could potentially lead to a major destabilisation of the entire worldwide financial markets; a risk that was obviously underestimated for a long time and finally lead to the genesis of the sub-prime crisis. The role of CRAs in the structured finance market has long been debated and the current financial turmoil has brought about concerns regarding such questions as to whether these credit ratings were based on wrong information and faulty or dated models, thereby questioning the significance of the system of CRAs. To enable a better insight into the functioning of CRAs and a justified testimony as to their performance, the following paper will dig deeply into the ambiguity of the rating process and the role of CRAs in structured finance.
øŠAline Darbellay analyzes the obvious system relevance of credit rating agencies in depth and assesses the possible options for regulatory responses to this systemic issue. Thereby, the book is based on a fruitful comparative legal approach and formul
Provides an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. Discusses the ways that market participants work to minimize these frictions and speculate on how this process broke down. Continues with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. Presents the key structural features of a typical subprime securitization, documents how rating agencies assign credit ratings to mortgage-backed securities, and outlines how these agencies monitor the performance of mortgage pools over time. The authors draw upon the example of a mortgage pool securitized by New Century Financial during 2006. Illustrations.
