Failures in Risk Modelling and Rating Securitized Products

Francesco de Zwart
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Francesco de Zwart: University of Adelaide

Chapter Chapter 27 in The Key Code and Advanced Handbook for the Governance and Supervision of Banks in Australia, 2022, pp 795-803 from Springer

Abstract: Abstract Chapter 27 of the Stage 2 Key Code and Advanced Handbook for the governance of Australian major banks examines failures in risk modelling and rating securitized products. This begins with variables for failures in risk models of securitized products – the [NEDRiskModelInfo] (−) variable – including failure to price risk accurately and the consequent reduction in risk management, monitoring and decision-making quality. Similarly, the [EDRiskModelPrice] (−) variable also covers risk modelling of securitized products including the failure to price risk accurately, this time for executive directors. Variables are then constructed based on credit ratings of securitised products for again NEDs and executive directors including conflicts of interest of ratings agencies. We conclude with variables for leverage and off-balance-sheet entities including ‘hidden leverage’ in financial statements and off-balance-sheet entities with the consequent reduction in risk management, monitoring and decision quality and the consequent reduction in the transparency and timing of reporting and internal and external monitoring.

Keywords: Risk modelling; Ratings of securitised products; Risk management; Monitoring; Decision quality; Failure to price risk; Conflicts of interest; Hidden leverage; Off-balance-sheet entities (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-16-1710-2_27

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DOI: 10.1007/978-981-16-1710-2_27

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