Bloomberg reports:
Ratings companies face rules including one prohibiting them making recommendations on the way products they grade are structured, the Madrid-based International Organization of Securities Commissions said today. IOSCO, the main forum for more than 100 securities regulators worldwide, said there should also be independent reviews of the way firms assign ratings.…Ratings companies will have to “differentiate ratings of structured finance products from other ratings, preferably through different rating symbols,” the regulators said in an e- mailed summary of the code.…Fitch said April 29 it received “limited interest” from market participants in adopting a different rating scale.…Market participants who responded, including investors together holding more than $9 trillion in fixed income securities, “overwhelmingly” rejected the idea of a separate rating scale for asset-backed securities, Moody’s said May 14.
Nobody in their right minds really cares about a different rating scale for structured instruments - this is simply cosmetic nonsense, invented to persuade the gullible public that the Wise Regulators are Taking Firm Action. I would certainly not expect any regulator to pay the slightest attention to the overwhelming majority of credit professionals who think the idea is just a touch on the rinky-dink side.
In their “Global Structured Credit Strategy” report of May 13, 2008, Citi’s Structured Credit Products Group opined:
So we repeat the plea that we made in our earlier note4 when discussing rating agencies’ proposals for reforming their criteria in light of substantial ABS CDO downgrades. We see the emphasis on expected loss — and the comparability this creates between structured and flow credit ratings — as a tremendous advantage. Unquestionably, give analysts greater powers, and create governance procedures to make them more independent. By all means, add additional dimensions (or even pictures of return distributions) to capture tail risk. (We were thus more supportive of Moody’s proposals for providing an additional “volatility” dimension, leaving the “core” rating still intact yet providing important new information).
This makes sense … I would consider a second dimension in credit ratings to be valuable advice and I would take such advice seriously when formulating my own views.
