RT Journal Article SR Electronic T1 Rating Regulation—Missing the Mark? JF The Journal of Structured Finance FD Institutional Investor Journals SP 77 OP 81 DO 10.3905/jsf.2016.22.1.077 VO 22 IS 1 A1 Diane Westerback YR 2016 UL https://pm-research.com/content/22/1/77.abstract AB Rating regulation makes it even less likely that the rating agencies will call the next “big short,” even though regulation has improved consistency, transparency, documentation, and timeliness.Ratings play an integral role in the capital markets, but the incentives for the rating agencies to improve ratings are low because the barriers to entry are high, shutting out new entrants. The limited risk retention imposed by regulators, for both rating agencies and issuers, in combination with the issuer pay model, encourage the rating agencies to cut credit support levels deal by deal, generating a race to the bottom. As many of the regulations only apply to private-label residential mortgage-backed securities (RMBS), this market has been effectively strangled—a missed opportunity resulting in constrained credit to non-Qualified Mortgage borrowers. Other entities may emerge to provide analytics that ultimately surpass those driving the rating decisions, but even this may occur outside RMBS given the lack of new product.TOPICS: Information providers/credit ratings, financial crises and financial market history