EU: European Commission Publishes Two Consultation Papers on Regulation of Credit Rating Agencies (CRAs)
The two consultation papers published by the European Commission (Commission) on 31 July 2008 result from the perception that CRAs contributed to current market turmoil by underestimating the credit risk of structured instruments in which sub prime mortgages were embedded. Many investors relied too heavily on the generally favourable ratings given by CRAs to these products instead of assessing the risk characteristics themselves and assessing performance of the underlying assets.
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