Transcripts

The SEC Takes Aim At Credit Rating Agencies

SUSIE GHARIB: The Securities and Exchange Commission proposed new rules today for the nation's credit rating agencies to crack down on conflicts of interest. As Stephanie Dhue reports, the SEC's aim is to change business practices at Standard & Poor's, Moody's Investors Service and Fitch Ratings.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the market for real estate and mortgage-backed securities was hot, credit rating agencies were paid not just to rate the securities, but also to structure them. The Securities and Exchange Commission now wants to ban that practice. SEC Chairman Christopher Cox calls it a triple-A conflict of interest.

CHRISTOPHER COX, CHAIRMAN, SEC: The structured products were specifically designed for each tranche to achieve a particular credit rating and the ratings agencies then made a lucrative business of consulting with issuers on exactly how to go about getting those ratings.

DHUE: The SEC also wants to ban raters from receiving gifts worth more than $25 from the issuer and require greater disclosure about how a rating is determined. It is also considering having credit rating agencies create a new designation, like .sf to distinguish structured finance products from other debt products. SEC Commissioner Paul Atkins worries that could have unintended consequences.

PAUL ATKINS, COMMISSIONER, SEC: If the .sf becomes a scarlet letter, how long will it take for smart lawyers, accountants and investment bankers to design products around it? Will that further skew that marketplace and confuse investors?

DHUE: Consumer advocates call the proposals a step in the right direction. Still, David Berenbaum of the National Community Reinvestment Coalition says the SEC needs to do more to ensure rater independence.

DAVID BERENBAUM, EXEC. VP, NATIONAL COMMUNITY REINVESTMENT COALITION: Consumers and investors alike have an expectation that rating agencies are objective third parties; that's not the reality right now.

DHUE: The proposed rules will be open for public comment for 30 days. A vote on the final rules could come in the fall. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.