The SEC Considers Taking A Closer Look At Credit Rating Agencies
Wednesday, April 15, 2009PAUL KANGAS: The Securities and Exchange Commission is considering greater oversight of the nation's credit rating agencies. Those firms had been blasted for keeping triple "A" ratings on risky securities backed by residential mortgages. Congress has even held hearings on their role in the recent financial meltdown. As Stephanie Dhue reports, today's call for change has a familiar ring.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The collapse of Enron started the clamor for change at the credit rating agencies back in 2002. It took until 2006 for Congress to pass legislation that brought more competition to the ratings business. Then late last year came the credit crunch and the financial meltdown.
JAMES KAITZ, PRES. & CEO, ASSN. OF FINANCIAL PROFESSIONALS: It's like "Groundhog Day," the movie for me. It's like the same day, you keep coming back.
DHUE: Jim Kaitz who heads the Association of Financial Professionals says the ratings business needs more substantial changes.
KAITZ: I think if we really look at fundamentally, the competition, how we look at how the rating agencies are paid and someone's willing, hopefully at the commission level to really take some bold action, then maybe we can make some progress.
DHUE: Former Congressman Richard Baker sponsored the 2006 legislation which grew the number of recognized ratings firms to 11. But that hasn't made much difference. Even the government still relies on the big three for ratings.
RICHARD BAKER, FMR. CHMN. HOUSE FINANCIAL SERVICES COMMITTEE: One of the notable setbacks is in the Fed's issuance of requirements relating to TALF. They required people to have been rated by one of the three principal rating agencies as opposed to any of the approved rating agencies.
DHUE: The big three, Standard & Poor's, Moody's and Fitch, say they are managing conflicts of interest in their businesses, re-evaluating their ratings models and making changes. And the SEC has required changes in disclosure and record keeping. Daniel Curry of DBRS, a new rating agency in the U.S., says the current financial crisis has the companies on their best behavior.
DANIEL CURRY, PRESIDENT, DBRS: There's a lot of work that's been done at all agencies to improve the quality of those decisions and managing conflicts. I wonder how permanent that will be.
DHUE: The focus now is on transparency and accountability. Robert Dobilas heads the credit rating agency Realpoint. He says investors need an easy guide to the ratings.
ROBERT DOBILAS, FOUNDER, REALPOINT: When you pick up "Consumer Reports" and you look at, you know, toaster ovens, you're able to read the reviews on the toaster ovens. You're able to see the different comparisons of toaster ovens to each other, same type of thing. You don't have that in the bond markets.
DHUE: SEC Chairman Mary Schapiro says her agency has a lot of work to do to restore investor confidence in credit rating agencies. But any major changes are likely to be evolutionary, not revolutionary. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
