WASHINGTON – Rep. Paul Kanjorski (D-Pa.) has drafted a bill that would make credit ratings agencies collectively liable for inaccuracies.
The bill is a response to heavy criticism of credit ratings agencies as underestimating the risk and overestimating the safety of numerous financial instruments, which later either failed or sharply declined in value, and playing a significant role in the current financial crisis. That would include many corporate credit unions, which have had to record significant losses on mortgage-backed securities, despite those securities receiving AAA ratings from the credit ratings agencies.
Kanjorski said his proposal is meant to address a key problem with the current system: the companies that issue securities – and not the investors – pay the credit ratings agencies for ratings of their securities. During a hearing by the House Financial Services subcommittee, Kanjorski called the proposal a start toward having the various ratings agencies, such as Standard & Poor’s and Fitch, “police one another.”
