Abstract
Securitisation, as a structured financial instrument, can give rise to excessive risk taking by the originator. It was expected that credit-rating agencies will assist the Special Purpose Vehicles (SPVs) and investors by revealing the risk. However, given that they pursue their own objectives, of increasing business volume and revenue, credit-rating agencies may not pay attention to investor risks though they claim to do so. This study defines regulatory practices against this backdrop. It is obvious that regulatory measures can be directed to the originator, SPV, or the credit-rating agency. We attempt a comparative evaluation and arrive at an efficient design of regulatory mechanisms and derive the implied credit ratings. In particular, we show that an efficient regulatory practice will be to require a deposit, proportional to the amount of receivables being securitised, from the originator.
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