US resists ratings regulation
THE Obama administration is resisting calls to help ensure that credit ratings are reliable, saying this would force investors to rely even more on the ratings.
Although credit rating agencies have been accused of assigning top ratings to complex securities that later crumbled in value, the government should not be in the business of regulating the agencies’ methodologies or performance, a US Treasury official told Congress on yesterday.
“To do so would put the government in the position of validating private sector actors and would likely exacerbate over-reliance on ratings,” the Treasury’s assistant secretary for financial institutions, Michael Barr, said.
Moody’s, Standard & Poor’s and Fitch Ratings have been blamed for contributing to the financial crisis by not doing enough due diligence on securities linked to shoddy mortgages.
Many lawmakers are outraged with how the rating agencies performed and have been seeking ways to make them more accountable.
The Senate Banking Committee held a hearing on Wednesday to examine the Obama administration’s plan to reform the credit rating industry.
As part of its plan to overhaul U.S. financial regulation, the administration has proposed increasing disclosures and ways to crack down on what some consider the rating agencies’ conflict of interests.
Many of its proposals are already being addressed by the Securities and Exchange Commission, which has adopted rules to give investors more information on how an agency determines a rating for a complex product like mortgage-backed securities.