[print version]
Senate Votes to Make Sweeping Changes to Credit Rating Process
May 13, 2010
FEI Summary
The United States Senate continues debate on S. 3217 – Restoring American Financial Stability Act of 2010. On May 13, 2010, the Senate voted to adopt two amendments that will make significant changes to the regulation of Nationally Recognized Statistical Rating Organizations (NRSROs), commonly referred to as credit rating agencies.
Federal requirement to assign a rating organization for each initial credit rating. The first amendment, adopted by a vote of 64-35, was authored by Sen. Al Franken (D-Minn.), and establishes a Credit Rating Agency Board that will be required to conduct a study of the securitization and ratings process. The board, overseen by the U.S. Securities and Exchange Commission, will also be charged with randomly assigning an NRSRO to each issuer wishing to receive a credit rating. All requests for credit ratings will no longer be submitted to the NRSRO itself, but the board instead.
The intention of this amendment is to reduce conflicts of interest between the rating agencies and the companies who pay for the ratings. However, another consequence will be increasing competition among other, smaller entities that will still be able to rate companies without going through the new board.
Removal of all statutory references to NRSROs. The second amendment, adopted by a vote of 61-38, was authored by Sen. George LeMieux (R-Fla.), and writes NRSROs out of the law. The intended effect is to reduce reliance on ratings`. Another effect will likely be that regulators will be charged with establishing rules to evaluate a company’s credit worthiness.
Sen. Christopher Dodd (D-Conn.), chairman of the Senate’s Banking Committee, expressed his opposition to both amendments, noting that a significant amount of work was done in the underlying bill to address the ratings process, require additional disclosure of ratings methodologies and strengthen oversight.
The amended bill must still be approved by the full Senate, and then it will move to conference between the House and Senate, where provisions can be stripped out or changed.
Posted May 13, 2010 by Cady North (cnorth@financialexecutives.org) manager of Government Affairs, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.
[print version]