Freshman Democratic Senator from Minnesota Al Franken today succeeded in passing his amendment to change the arrangement of credit ratings agencies such as McGraw-Hill’s (MHP) Standard & Poor’s, Moody’s Investors Services (MCO), and privately held Fitch Ratings.
The measure, Restore Integrity To Credit Ratings, passed by 64 to 35, and is now included in the Senate financial reform legislation, would to create an regulatory board composed mostly of investors that will pick which credit rating agency gives the first review of a proposed security.
The Wall Street Journal’s Fawn Johnson quotes Sean Egan of ratings service Egan-Jones Ratings say the measure “has the potential for significantly improving the rating industry,” while S&P commented that the measure threatens to make S&P and the rest less competitive.
Frank’s office issued a press release saying the board would eliminate the conflict of interest whereby Moody’s and others attract bank business by dressing up credit ratings on products.
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