WASHINGTON — House and Senate lawmakers on Wednesday agreed to establish a new quasi-government entity designed to address conflicts of interest inherent in the credit ratings business after the Securities and Exchange Commission studies the matter.
The negotiators also have agreed to liability standards under which credit rating agencies can be sued. House Financial Services Committee Chairman Barney Frank, D-Mass., said the agreed-upon language removes exemptions for ratings firms. "There will be no carve-outs for them," he said.
The deal comes after members of the "conference committee" working out the final version of a financial overhaul bill on Tuesday voted to replace the proposed new regulatory body with a study.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Wednesday that he had worried about mandating a new credit rating clearinghouse without some analysis of whether such an entity was feasible.
Under the new agreement, the SEC will be required to implement the proposed new clearinghouse after it studies the issue, unless it determines that an alternate mechanism is more appropriate.
Credit rating agencies have warned that the proposed new regulatory body would have unintended consequences.
But the credit rating industry has come under fire in the wake of the 2008 economic meltdown. Policymakers say they failed to detect the weakness of securities based on risky mortgages and other loans.
The proposed new regulatory body for credit rating agencies was an amendment offered by Sen. Al Franken, D-Minn. Its intent is to limit conflicts in the existing system in which Wall Street firms pay for ratings and can shop around for the best score.