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s new role, rating agencies tend to rate products issued by these issuers a higher rating than they actually are. The issuer has ability to adjust deal structure to get desired rating. And issuer has influence on rating process. (Committee on the Global Financial System, 2005), (Mason and Rosner, 2007).

2.2.5 The role of rating agencies in the crisis

According Tom Bulford (2008), (Ruth Rudden, 2007) “The credit rating agencies like Moody's, Standard and Poor's and Fitch played a central role in growing the residential mortgage-backed securities, these credit rating agencies were titled to rate these securities on behalf of the huge investment banks to sell to the investors.

The ratings of these securities were to identify the risk involved in the securities, they followed a particular three main flow in calculating the risk rating for the investors, the first as to interest the investors on the securities, they provided portfolios of RMBS which highlighted a certain level of risk involved in it, this was done through tranches which means, the different level of risks involved securities were put into different groups called tranches. This helped the investors in deciding whether to stay first in line during the event of default or down the queue. This was one point where the investors relayed on the ratings to invest on the securities.

The other two things which they followed to rate the securities, one was data which was used in the financial models of the rating agencies to rate these securities, the data contained here are the information about the mortgage loans that are parceled by the investment banks. These mortgages came from the originators who provided all the information about the mortgagees like their credit history, income, etc. hence these originators provided information was historical.

The information given source was not sure about as they stood by the words of the originators. Using this information on the models they used in the rating would off course end up being inaccurate. This made the investors relaying on the high rating given by these rating agencies and hence invested confidently.

The rating agencies assured that the portfolios of mortgage backed securities were “stress tested” by ‘Monte Carlo simulation of macroeconomics variables to create a loss distribution'. The assumptions were not wide enough because the rating agencies relied upon historical data, and till now MBS were concerned ‘the performance history that did exist occurred under very benign economic conditions'. The reasons just don't stand on rating agencies following the historical data for the calculations but also the workload and the conflicts when the interest rates rose which laid the investment bank concentrate on getting the best ratings on the securities that is laid for sale.

This increased the competition between the agencies; they did not want to lose deals and hence gave ratings as necessary with one initiative that was not to lose deals. One of the illustration proves the above comment, one of the member in an rating agency who did not want to lose a deal wrote a mail which said “I had a discussion with the team leaders here and we t本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。