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If we look at 17 which gives information of percentage share of revenues by structured finance products. The share of revenues by structured finance products slowly increased from above 25% and peaked 43% in the year 2006. This shows how much revenue moody's earned with the help of structured finance products.

This process of issuer paying for his rating created conflict of interest. So considering profits they incur from this 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.

(Daníelsson J, 2002) said the statistical model to be accurate it should not have Endogenous risk, Quality of assumptions should be good, and Data quality should is good. If we consider moody's model for rating RMBS, there is Endogenous risk involved because moody's mortgage metrics try to model RMBS which is static in nature and doesn't have aggregate behavior. It is easy to model an institution using statistical model but when modeling structure moody's play catch up game. RMBS performance is affected by the borrower's ability to repay the loans so moody's play catch up game to incorporate borrower's performance for accurate results. (Vanessa G. Perry, 2008) proved, there is always dearth of data on subprime market. The data that is available is proprietary lender data. And this data had drawbacks on analysis of market trends. So moody's model is not good enough for rating RMBS. The results which come are just catching up of present situation and it doesn't capture any future risk.

Quality of assumptions in modeling risk is very important and moody's have their own assumptions in moody's mortgage metrics. Initial models of moody's (2003) have limited assumptions on borrower's performance. As RMBS performance is based on borrower's performance it is important that borrowers performance need to be incorporated in the model. This mistake has been rectified by moody's in the later updates in the year 2007. This update is too late as the crisis has already started and new assumptions on borrowers has increased downgrades in the ratings which is also one more reason for credit crisis.

Data quality is one more important element in statistical modeling. If the data quality is not good the result of the model is not accurate enough to be true. Moody's generally get data from servicer about the underlying loans. Moody's doesn't cross check the accuracy of the data with any third party agencies. This draw back has been rectified later in 2007 when data quality has been rechecked using third party agencies.

4.6 Analysis of role of rating agencies in financial crisis

According to Tom Bulford (2008), (Ruth Rudden, 2007) “The credit rating agencies like Moody's played a central role in financial crisis. this can be analysed by looking at the rating models, updates they did till now to the rating models, and short comes in the modelling and rating process.

Servicer (agencies or SPV) buys loans from the banks and convert them in to securities. These secur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。