How Are Covered Bond Ratings Determined?

Felix Salmon submits: Remember covered bonds? They're ever so safe, because not only are they overcollateralized, they're also guaranteed by the issuing bank. As a result, Hank Paulson has been dropping hints that he'd like to see the mortgage industry move in the covered bond direction in future. But "safe" doesn't mean "immune to downgrades", of course -- and Fitch has already started downgrading covered bonds issued by Washington Mutual (WM). One problem is that it's very hard for a ratings agency to assign a rating to a both/and probability, which is what a covered bond is.Complete Story »