Oversight Subcommittee Hearing Focuses on Credit Rating Agencies
July 26, 2011 -
As the nation’s major credit rating companies threaten to downgrade the credit rating of the United States over the swelling size of the national debt, the Oversight and Investigations Subcommittee will meet on Wednesday to examine the credit rating industry and the impact of Dodd-Frank Act changes to the regulation of credit rating agencies.
The Dodd-Frank Act contains an important provision, first proposed by House Republicans, to require the removal of statutory references to credit ratings from law and regulation. However, other provisions of Dodd-Frank have the potential to contradict this bipartisan goal.
“House Republicans were the first to propose removing references to credit ratings in all federal regulations. Our proposal garnered bipartisan support and was incorporated into the law, but other provisions in Dodd-Frank could undermine efforts to reduce the outsized role that credit ratings have come to play in our financial markets,” said Financial Services Committee Chairman Spencer Bachus.
Subcommittee Chairman Randy Neugebauer said, “The debt ceiling negotiations and the long-term fiscal health of the U.S. have brought a renewed focus on the credit rating agencies. This hearing provides an opportunity to discuss the state of the credit rating industry for the first time since the passage of the Dodd-Frank Act. The Dodd-Frank Act had conflicting goals. On the one hand, the Act attempts to de-emphasize the role of credit rating agencies in federal regulations and on the other hand, the Act further perpetuates and entrenches the government-sponsored oligopoly of the big three credit rating agencies. The former approach to reduce reliance on credit rating agencies enjoys widespread bipartisan support. This hearing will allow Members to explore these inconsistencies. The hearing will also provide Members on both sides of the aisle with an opportunity to hold regulators accountable for meeting their statutory obligations related to removal of references to credit ratings.”
Credit rating agencies, 10 of which are also registered as Nationally Recognized Statistical Ratings Organizations (NRSROs) in the U.S., rate the creditworthiness of the debt issued by public companies, countries and municipalities, as well as the risk of default for structured financial products including securities backed by mortgages, auto loans and student loans. Credit ratings play a major role in the capital market as they often determine borrowing costs and access to capital by market participants. While over 100 rating agencies exist worldwide, only three firms dominate the industry: Moody’s Investor Service, Standard & Poor’s, and Fitch Ratings.
The hearing will take place on Wednesday, July 27 at 10 a.m. in room 2128 Rayburn.
Witnesses scheduled to testify:
John Ramsay, Deputy Director, Division of Trading and Markets, U.S. Securities Exchange Commission
Mark Van Der Weide, Associate Director, Division of Banking Supervision and Regulation, Federal Reserve Board
David Wilson, Senior Deputy Comptroller and Chief National Bank Examiner, Office of the Comptroller of the Currency
Deven Sharma, President, Standard & Poor’s
Michael Rowan, Global Managing Director, Commercial Group, Moody’s Investors Service
James Gellert, Chief Executive Officer, Rapid Ratings
Jules Kroll, Chairman and CEO, Kroll Bond Rating Agency
Larry White, Robert Kavesh Professor of Economics, Stern School of Business, New York University