Investment Banks gone? II

Este es un excerpt de un una articulo del Bank of International Settlements Quarterly Review de 2005. Parece que los Investment Banks, adeptos al prestamo mas riesgoso (aca), pueden haber pisado alguno de estos palitos:

“While structured finance instruments can contribute to market completion and a better dispersion of credit risk, they also give rise to a number of questions with potential financial stability implications. One of these is whether adding structured instruments to an institution’s portfolio might lead to unanticipated risk concentrations. A closely associated question is whether ratings-related investment mandates and similar constraints are effective in defining maximum levels of risk when structured finance is an eligible asset class. The discussion above suggests that tranched securities pose unique challenges to the application of ratings-based constraints in that a greater likelihood of “tail events” is not captured by ratings ranking expected loss or probability of default. Transaction-specific documentation makes the task of assessing the riskiness of tranched instruments even more difficult, which in turn may increase investors’ reliance on ratings for “due diligence” purposes. And, even when asset managers do fully understand the risks they are taking, they may still be tempted to employ structured securities to increase portfolio risk to levels that are higher than was intended by those who designed their investment mandates. By implication, market participants and supervisors should not rely exclusively on ratings when setting risk limits for credit portfolios. Model risk is another important concern, being tightly linked to the complexity of structured products and to the sensitivity of tranche risk to differing assumptions embodied in estimates of the asset pool loss distribution. Importantly, any effect of misspecified model inputs, such as default correlation, may be magnified by governance issues, as equity tranche holders favour asset pools composed of obligors with high default correlations, at the expense of senior note holders. In addition, it should be noted that model risk is a feature also of the pricing models used by deal arrangers and other market participants. As these models have to date been largely untested by a truly major stress event, even the most sophisticated market participants may thus need to be careful when trading structured instruments, given the resulting scope for mispriced or mismanaged exposures."