Here, more than the rating agencies, the responsibility will lie on the regulators to capture the differential risk characteristics of various instruments, even though identically rated, in a very specific manner in their prescriptions. Uniform capital requirements just based on credit ratings will need to be replaced by a more granular and nuanced regulatory approach.
Financial innovation Much of the development in the financial sector internationally over the past couple of decades or so owes much to the open spirit of financial innovation. The recent turn of events, I would say, can be attributed more to the way the financial industry functions, given the underlying regulatory and the incentive structures, rather than on financial innovation, per se.