Both rating agencies and banks can do more to meet investor demand for greater transparency in the structured credit market, said Noel Kirnon, New York-based head of global structured finance at Moody’s Investors Service.Speaking exclusively to Risk, Kirnon commented: “Market feedback tells us there’s a desire for greater transparency, which we’re providing on an ongoing basis. While our methodologies are very detailed and publicly available on our website, there is always room for further improvement. We’re trying to create a more accessible road map of how we arrive at our methodologies.”
Rating agencies and their methodologies have been heavily criticised from the outset of recent market trauma, for failing to predict the scale of losses among US subprime mortgage loans and other assets linked to them.
But transparency, Kirnon added, was not solely an issue for agencies. “People want to have broad structural comparability across transactions and that’s a responsibility for the issuers and the banks,” he said.
The opacity of the structured credit market is believed by many to have led to the recent exodus of investment and liquidity in the sector. Consequently, some analysts – including those at Moody’s – have predicted investor enthusiasm for assets such as collateralised debt obligations (CDO) will not be rekindled until the issue is rectified.
Despite a period of low issuance volumes looming for structures such as CDOs, Kirnon said Moody’s would remain busy over the year on a number of fronts. These included enhancing its transaction monitoring and reviewing its methodologies, as well as communicating with investors, regulators and the media.
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