By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.
Credit rating agencies market themselves as providers of independent research and in-depth credit analysis. But in the financial crisis, instead of helping people better understand risk, they failed to warn people about risks hidden throughout layers of complex structures.
Flawed methodology, weak oversight by regulators, conflicts of interest, and a total lack of transparency contributed to a system in which AAA ratings were awarded to complex, unsafe asset-backed securities and other derivatives, adding to the housing bubble and magnifying the financial shock caused when the bubble burst. When investors no longer trusted these ratings during the credit crunch, they pulled back from lending money to municipalities and other borrowers.
Continue reading "Dodd Draft Legislation Would Create New SEC Office of Credit Ratings as Key Part of Rating Agency Reform" »
By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.
The Senate Banking Committee has released draft legislation that would provide a sweeping overhaul of the regulation of US financial services and markets. The draft would provide for joint SEC-CFTC regulation of derivatives, make the SEC self-funding, strengthen the Commission’s powers, better protect investors, and efficiently and effectively regulate the securities markets The Restoring American Financial Stability Act of 2009 would also reform the credit rating agency process by, among other things, establishes a new Office of Credit Rating Agencies at the SEC to enhance rating agency regulation and mandating new rules for internal controls, independence, transparency and penalties for poor performance in order to restore investor confidence in these ratings.
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By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.
The House Financial Services Committee has passed bi-partisan legislation reforming the governance and operations of credit rating agencies. The Accountability and Transparency in Rating Agencies Act, HR 3890, enhances the accountability of credit rating agencies by clarifying the ability of individuals to sue such agencies. The Exchange Act is amended to provide that, in an action for money damages against a rating agency, it is enough for pleading any required state of mind that the complaint state with particularity facts giving rise to a strong inference that the rating agency knowingly or recklessly violated the securities laws. In addition, statements made by rating agencies will not be deemed forward looking statements for purposes of the Exchange Act’s safe harbor.
Continue reading "Key House Committee Passes Credit Agency Reform Legislation " »
This story appeared in Bank Digest.
The House Financial Services Committee approved the Accountability and Transparency in Rating Agencies Act (H.R. 3890) by a vote of 49-14. The bill is intended “to curb the inappropriate and irresponsible actions of credit rating agencies which greatly contributed to our current economic problems,” according to principal sponsor Rep. Paul E. Kanjorski (D-Pa.), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.
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This story appeared in SEC Today
The SEC yesterday unanimously approved six initiatives aimed at strengthening the regulatory framework for nationally recognized statistical rating organizations. The SEC adopted rules to require NRSROs to provide more information about their rating histories and to allow competing credit rating agencies to offer unsolicited ratings for structured finance products by giving them access to the same data. The SEC also adopted amendments to certain rules and forms to remove a number of references to credit ratings.
In opening remarks, SEC Chair Mary Schapiro noted that investors often consider credit ratings in deciding whether to purchase or sell a security. These ratings did not serve them well over the last few years, she said. The SEC's rule adoptions and proposals are intended to improve the reliability and integrity of the ratings process. Schapiro reported that there are currently 10 NRSROs registered with the Commission. Commissioner Kathleen Casey noted that more are "waiting in the wings."
Continue reading "SEC Adopts New Credit Rating Agency Rules, Proposes Additional Rules" »