Angelides Backs Senate Ratings Clearing House

July 21, 2010 by · Leave a Comment
Filed under: Financial Crisis, The Rating Agencies 

Phil Angelides, chairman of the Financial Crisis Inquiry Commission, said that he supports a provision included in a Senate-approved bank reform bill that creates a government clearinghouse for structured-finance products that need to be rated.

An investment bank that needed a rating for a structured mortgage product, for example, would submit a request for a rating agency to the credit board.  The board would then assign which rating agency would do the work.

The idea has been controversial. The goal is to break up the cycle of credit rating agencies providing inflated ratings to get repeat business. Opponents object to the intrusion of government and its bureaucracy into the ratings process and claiming that the process would still not necessarily lead to more accurate ratings.

A government ratings assignment board would slow down credit formation and make it more expensive. All market participants know that issuers “shopped” ratings. This is only news to D.C. The government ratings assignments will only slow down the process, for the worse.

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