Senators Seek Stricter Regulations For Ratings Agencies

By Laura Woodhead - Talk Radio News Service

Regulations governing rating agencies must be tightened to prevent future economic distress a handful of Senators argued Wednesday during a hearing with the Senate Banking, Housing and Urban Affairs Committee. Chairman Chris Dodd (D-Conn.) said that rating agency regulation reform was essential due to the pivotal role poor financial regulation played in the collapse of the U.S. financial market.

“There are two areas alone that deserve special recognition for the [financial] problems. One was, of course, failure the to regulate the brokers who were out marketing products they knew had problems… and the second is the ratings agencies.” said Dodd. The modernization of financial regulations “may be the most important piece of legislation that this committee will deal with or has dealt with in decades,” he said.

The committee discussed the effects of the Rating Accountability and Transparency Enhancement Act of 2009 once passed, as well as adopting the administration’s proposed overhaul on the regulations for ratings agencies. Both proposals advocate an increase in transparency, a system to expose conflicts of interest, and greater SEC supervision.

Testifying before the committee, Assistant Treasury Secretary for Financial Institutions Michael Barr said it was important to show the market that the government was serious about regulatory reform.

“[We need to have regulations that] permit transparency in the system, restore honesty and integrity to the process that was so sorely lacking in the last bit of time,” he said.

In response to an assertion made by Sen. Johanns (R-Neb) that more regulation could cause higher costs to be passed on the American public, Barr said that every consumer were already negatively affected by unsatisfactory rating regulations.

“I think, unfortunately, the whole country is paying the price. Every consumer is paying the price today of a significant failure of our financial regulatory system,” Barr said.

“I think we need to have a system in the future in which the level playing field and high standards are established in a way so that it makes it much less likely that we are going blow up our financial system and cause this amount of harm to the average American home owner, consumer small business person,” Barr continued.

Rapid Ratings International, Inc. Chairman and CEO James H. Gellert said that the administration’s proposal was a mix of “positive steps and disturbing developments” that would stifle potential innovation and competition, and ultimately cause smaller ratings agencies to go out of business.

“The Treasury proposal…threatens to erect more hurdles to competition in this industry,” Gellert said.