Credit rating agencies - House oversight

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See also credit rating agencies.


House Committee passes credit ratings legislation

"Today, the House Financial Services Committee passed H.R. 3890, the Accountability and Transparency in Rating Agencies Act, introduced by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. The Committee passed H.R. 3890, with bipartisan support, by a vote of 49-14.

“The Accountability and Transparency in Rating Agencies Act aims to curb the inappropriate and irresponsible actions of credit rating agencies which greatly contributed to our current economic problems,” said Chairman Kanjorski. “This legislation builds on the Administration’s proposal and takes strong steps to reduce conflicts of interest, stem market reliance on credit rating agencies, and impose a liability standard on the agencies. As gatekeepers to our markets, credit rating agencies must be held to higher standards. We need to incentivize them to do their jobs correctly and effectively, and there must be repercussions if they fall short. This bill will take such steps. I look forward to moving it through the legislative process.”

A summary of H.R. 3890 follows:

  • Stronger than the Administration's Plan on Rating Agencies. The Accountability and Transparency in Rating Agencies Act expands on the initial credit rating agency legislation proposed by the Administration in that it:
  • Creates Accountability by Imposing Liability. The bill enhances the accountability of Nationally Recognized Statistical Rating Organizations (NRSROs) by clarifying the ability of individuals to sue NRSROs. The bill also clarifies that the limitation on the Securities and Exchange Commission (SEC) or any State not to regulate the substance of credit ratings or ratings methodologies does not afford a defense against civil anti-fraud actions.
  • Duty to Supervise. The bill adds a new duty to supervise an NRSRO's employees and authorizes the SEC to sanction supervisors for failing to do so.
  • Independent Board of Directors. The bill requires each NRSRO to have a board with at least one-third independent directors and these directors shall oversee policies and procedures aimed at preventing conflicts of interest and improving internal controls, among other things.
  • Mitigate conflicts of interests. The legislation also contains numerous new requirements designed to mitigate the conflicts of interest that arise out of the issuer-pays model for compensating NRSROs. Additionally, the bill significantly enhances the responsibilities and accountability of NRSRO compliance officers to address conflicts of interest issues.
  • Greater Public Disclosure. As a result of the bill, investors will gain access to more information about the internal operations and procedures of NRSROs. In addition, the public will now learn more about how NRSROs get paid.
  • Revolving-Door Protections. When certain NRSRO employees go to work for an issuer, the bill requires the NRSRO to conduct a 1-year look-back into the ratings in which the employee was involved to make sure that its procedures were followed and proper ratings were issued. The bill also requires NRSROs to report to the SEC, and for the SEC to make such reports public, the names of former NRSRO employees who go to work for issuers.

House Committee on Oversight hearing September 30

Agenda: “Credit Rating Agencies and the Next Financial Crisis.” September 30, 2009 Time:10:00 a.m. Location: Rayburn 2154 this is a postponement from September 24

Credit-ratings firms came under pressure as lawmakers and regulators renewed scrutiny of the ratings process.

A congressional committee called on Moody's Corp. to respond to allegations its Moody's Investors Service unit continues to inflate credit ratings. Meanwhile, state insurance regulators gathering in National Harbor, Md., grilled executives of major ratings firms about their botched analysis of mortgage bonds and discussed ways to pare ratings firms' role in assessing risk.

Moody's shares slid 4.4% on Thursday and have tumbled 28% this month amid scrutiny of the firm. Former Moody's analyst Eric Kolchinsky went public earlier this week with allegations that the firm knowingly gave inaccurate ratings to complex securities this year. The House Oversight and Government Reform Committee on Thursday released a letter written by Mr. Kolchinsky detailing his complaints to Moody's officials.

"Moody’s Investors Service, Standard & Poor’s and Fitch Ratings face scrutiny today by insurance regulators examining the role of the firms in evaluating fixed- income securities.

State insurance regulators are meeting in Maryland to examine the firms’ role in rating bonds held by insurance companies. A second hearing scheduled today, by Edolphus Towns, chairman of the House Oversight and Government Reform Committee, was postponed to Sept. 30. The panel will look at ratings companies amid allegations of continued conflicts of interest from a former Moody’s analyst.

The three companies have been criticized by investors and lawmakers including Senate Banking Committee Chairman Christopher Dodd, who said they wrongly assigned top credit rankings to U.S. subprime-mortgage bonds just before that market collapsed in 2007. Subprime mortgages helped spark a housing- price collapse that contributed to a worldwide financial crisis.

“2008 showed us that bond ratings can give people a false sense of security,” said Mark MacQueen, who helps oversee $7.5 billion in debt at Sage Advisory Services Ltd. in Austin, Texas. “I don’t put a lot of weight in the ratings.”

Insurance regulators may move to place less emphasis on the ratings of the big three firms. Yesterday, the National Association of Insurance Commissioners approved Realpoint LLC to evaluate commercial mortgage-backed securities. The NAIC said it is reviewing whether to create a non-profit bond-rating firm."

Analysis and discussion with Former Analyst of Moody's Evaluations Eric Kolchinsky. He talks about Moody's culture, its clients and the credit agencies.

House Financial Services hearing September 30

2:00 pm, September 30, 2009, 2128 Rayburn House Office Building

  • Mr. Daniel M. Gallagher, Co-Acting Director, Division of Trading and Markets, Securities and Exchange Commission
  • Mr. Raymond McDaniel, Chairman and Chief Executive Officer, Moody's Corporation
  • Mr. Deven Sharma, President, Standard & Poor's
  • Mr. Stephen W. Joynt, President and Chief Operating Officer, Fitch Inc.
  • Mr. Robert Dobilas, President and Chief Executive Officer, RealPoint LLC
  • Mr. James H. Gellert, President and Chief Executive Officer, Rapid Ratings International Inc.
  • Mr. Kurt Schacht, Managing Director, CFA Centre for Financial Market Integrity

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