How secure are ratings?

Basel II

The credibility of rating agencies has been brought into question in the wake of the credit crisis. In particular, rapid multi-notch downgrades, a drying up of liquidity and dramatic declines in valuations of senior tranches have raised doubts over whether ratings are an effective tool to assess the risks of structured credit products.

For regulators, alarm bells are ringing for other reasons too. Under Basel II rules on securitisation, external credit ratings must be used to calculate the level