Securitization and Subprime Crisis: a Critical Analysis of the Role Credit Rating Agencies

The pivotal role that the three large US credit rating agencies Moody’s, Standard & Poor’s (S&P) and Fitch played in the recent subprime mortgage lending and the following financial crisis has led to extended regulation of these agencies and requires significantly more regulation. Credit rating agencies and the ratings they supply are critical information resource for investors. An error in the credit rating process has a huge impact on buyers and sellers of credit. It also affects the overall performance

The Global Financial Crisis (GFC) is considered by many, particularly economists, to be the most disastrous financial crisis since the Great Depression back in the 1930s. It was the systematic collapse several large financial institutions based on Wall Street triggered by the housing bubble burst, followed by immense market value drop in the Dow Jones and the US dollar. This led to a massive financial bailout carried out by the US government, called the Emergency Economic Stabilization Act of 2008

Chapter 2. Background 2.1 Introduction This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial

3 Questions True or false: 1. Due to insurance arrangements and the securitization of mortgage investments, many U.S. bankers did not adequately gauge the risks of subprime loans. TRUE 2. A commonly accepted theory is that the Subprime lending crisis was due the Government placing more restrictions and regulations on the investment banking industry starting in 1999. FALSE 3. For the most part, the credit ratings granted to mortgage-backed securities did not accurately reflect the true

2-4 • Covers Credit Risk • Prevents Liquidity Problems • Manages Operational Risk • Restricts banks from taking excessive risk Manipulation of Capital Standards 4-7 • Quality of Capital Resources • Internal Rating Based (IRB) approach under Basel-II • Securitization • Credit Derivatives

in-charge Sanjana Khanna (268) M.B.A.-M.B.L. (III Sem) ------------------------------------------------- INTRODUCTION In an increasingly interdependent financial world the recent Global Economic Crisis has had a cascading effect on the economies across nations. The crisis also impacted the Indian economy, though on the subdued scale and magnitude vis-à-vis the USA and other developed countries.

The majority of growth resulted from acquisitions between 1996 and 2002. On October 1, 2005, the Bank entered the credit card lending business by acquiring Providian Financial Corporation. These acquisitions enabled Washington Mutual Bank to expand across the country, to build its customer base, and to become the largest savings and loan association in the country.

US banks' credit ratings By EILEEN AJ CONNELLY | AP – Tue, Nov 29, 2011 NEW YORK (AP) — Standard & Poor's Ratings Services has lowered its credit ratings for

sector led to the global financial crisis of 2008-2009. SUBMITTED BY: PANKAJ PARASHAR STUDENT ID: 3098673 SUBMITTED TO: DR.LISA BARNES GSBS6484:CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY PANKAJ PARASHAR 3098673 GSBS6484 Page | 2 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY……………………………………………. 3 2. INTRODUCTION ……………………………………………………... 4 3. GROWING OUT OF FINANCIAL CRISIS…………………………. 4 4. INITIATION OF GLOBAL FINANCIAL CRISIS…………………. .5 5. CRITICAL ANALYSIS OF US POLICIES AND IRREGULARITIES

Lehman Brothers as the biggest bankruptcy case in the US history and the events that followed. The first part of the paper reviews factors that led to the failure and consequently the bankruptcy event. Some of the causes leading to the crisis, namely the market for Credit Default Swaps (CDOs), misrepresentation of financial statement, complex structure of the company, low standards, and unethical