Instead, they simply accepted investment-grade ratings as a substitute for their own risk analysis. Market participants may also have assumed that these vehicles had sufficient funding liquidity, or would receive bank liquidity support if funding became an issue. In observing these cases of insufficient due diligence, I am reminded of the old adage "Trust but verify."
As you are aware, as a step towards further enhancing and fine-tuning risk management systems in banks, Reserve Bank has issued guidelines on asset-liability management and risk management systems in banks in 1999 and Guidance Notes on Credit Risk Management and Market Risk Management in October 2002 and the Guidance Note on Operational risk management in 2005.