This opaqueness of the securitisation process, accompanied by investors’ over-reliance on, and poor understanding of, external ratings, seriously undermined investor confidence and continue to put strain on the financial markets. Fourth, with liquidity strains characterising certain market segments, it became impossible for firms to properly value a range of financial assets and off-balance sheet exposures.
Admittedly, the existing standards on valuation and accounting proved to be inadequate for illiquid markets. The sources of the current turbulence on financial markets are manifold. So are the consequences. What we can see now is that financial institutions are becoming increasingly under pressure to clean their portfolios and to strengthen their capital base, reinforcing the rapid de-leveraging process already underway.