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How secure are ratings?

Questions over the accuracy of credit ratings for structured credit products have raised doubts about the treatment of securitisation under Basel II. Luca Giaccherini and Giovanni Pepe of the Bank of Italy evaluate the reliability of the Basel II methodology

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

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