In May 2003, the Committee on the Global Financial System (CGFS) decided to establish a Working Group on Ratings in Structured Finance to explore the role of rating agencies in the rapidly evolving markets for structured finance instruments. To facilitate a better understanding of this role and of structured finance markets more broadly, the Working Group was mandated to identify and explain methodological differences that exist between the rating of structured finance instruments and more traditional credit products, and to explore the various methodological and organisational challenges involved in rating structured finance products.
This report documents the Working Group's findings, complementing earlier work by the CGFS and other official forums, such as CGFS (2003) and Joint Forum (2004b). It highlights several of the characteristics of structured products, challenges arising for the rating agencies and other market participants, and implications for central banks and investors. The report is based on the Group's discussions, written contributions by Group members on a number of technical topics, and series of interviews with rating agency officials and other participants in the structured finance markets.