However, it subsequently became clear that the rating agencies had not themselves understood the extent of the risks associated with complex structured instruments, particularly those related to subprime mortgages. Once those risks were realized, the ratings of many of these securities were downgraded sharply, with investors taking very large and unexpected losses. Addressing these weaknesses will require action on several fronts.
As I noted earlier, the Basel Committee has announced improvements to bank capital standards for securitizationrelated exposures, thereby better aligning these standards with the risks presented by securitizations.