Also, and perhaps most importantly, credit premium determination might have become largely independent of the creditworthiness – and the value of collateral pledged by – individual borrowers. The explosion of sub-prime loans is a very telling example of this tendency of credit terms to become disconnected from the credit history and the balance sheet position of borrowers.
On the other hand, the more continuous pricing of credit market products offered by credit risk transfer instruments as well as the parallel move to fair-value accounting standards may have accentuated the sensitivity of the external finance premium to changes in monetary policy.