Click here to subscribe today or Login.
Kanjorski
WASHINGTON — U.S. Rep. Paul Kanjorski wants to make credit rating agencies — which have been widely criticized for failing to give investors adequate warning of the risks in subprime mortgage securities that triggered the financial crisis — responsible for each other’s assessments by holding them collectively liable for inaccuracies.
Kanjorski’s new draft bill includes a plan meant to address what critics contend is the crux of the current system’s problem: companies that issue securities — as opposed to investors — pay the agencies for ratings of those securities.
Raymond McDaniel, chairman and CEO of Moody’s Corp., said the company supported enhanced regulatory oversight of the industry. But imposing collective liability could increase the number of meritless lawsuits over unhappiness with ratings and create an unpredictable business environment, he told the lawmakers Wednesday.
Kanjorski, D-Nanticoke, chairman of a House Financial Services Subcommittee, contends that establishing collective liability could spur the powerful agencies — Moody’s Investors Service, Standard & Poor’s and Fitch Ratings — “to police one another and release reliable, high-quality ratings.”
“This is the start of a process,” he said at a subcommittee hearing. Kanjorski’s draft also includes Obama administration proposals to tighten oversight of the rating industry, as part of the effort to overhaul the nation’s financial rules.
Congress is escalating its scrutiny of the Wall Street rating industry as well as closely examining possible legislative changes to reshape the business.
At another House hearing, two former Moody’s employees detailed allegations of misconduct at the big ratings firm as lawmakers took aim at an industry they condemned as rife with conflicts of interest and needing reform.