Seven years on, ratings reform still needs work
Seven years after the crisis brought the reliability of credit ratings into question, parts of the sector are still in need of reform, issuers, investors and ratings officials told a standing room only crowd on day one of ABS East.
The rating agency reform panel played to a standing room only crowd as investors, issuers and rating agency executives debated the effects of previously implemented reforms and which parts of the sector still need reforming.
Topping the panel’s list of topics on Wednesday was the effect of disclosure rules and the internal controls that guarantee the integrity of an agency’s ratings methodology. The rules, implemented last September, dictate that rating agencies must have internal controls in place to show they have sufficiently reviewed any changes to methodology, extending accountability from the top all the way down to the analyst level.
“Overall, the reforms have gone a long way to addressing post-crisis concerns about quality and integrity of ratings,” said Calvin Wong, chief credit officer of Morningstar Credit Ratings, adding that there are still areas that the reforms have yet to address.
The CMBS market, for instance, is in deep dialogue over the comeback of
“The big three still dominate in most asset classes… That runs counter to the underlying rules that
From an investor perspective, the implemented reforms are a mixed bag. On the one hand, tighter controls and
On the other hand, the disclosure rules do not extend to all market participants. In CMBS, issuers disclose the ratings provided by an agency only for certain parts of the capital stack, while leaving other parts unrated. This has been common practice in the CMBS market for over two years now, but investors are still put off by it.
“There is really no alternative that we really see
Bob Behal, co-head of ABS and CMBS at Vanguard, said that it is hard to believe the topic of
“That is the key to the dilemma at hand,” Behal said.Read our daily coverage here