Senate Backs Proposal Which Would Require SEC Oversight of Ratings Agencies

On Thursday the Senate voted to approve tighter regulations on credit-rating agencies which have recently been put under fire for not recognizing the risks of CDO's prior to the financial crisis.

The proposal was passed in a 64 to 35 vote and will be added to the wide-ranging rewrite of financial regulations that could be passed as early as next week. The issue would essentially set up a clearinghouse for the agencies to pass their ratings through before market dissemination.

Ratings agencies like Moody’s Corp. (NYSE: MCO), Standard & Poor’s and Fitch Ratings handed toxic mortgage-backed securities top-notch ratings prior to the financial meltdown.

"There is a staggering conflict of interest facing the credit rating industry," Democratic Senator Al Franken said on Thursday.

The new regulations would also give some of the smaller ratings agencies a chance to catch up to the big three in the industry.

The measure was not backed by Democratic Senator Christopher Dodd, who is the overseer of the financial regulation rewrite. Dodd said that the proposal has merit but needed to be studied further to ensure that there are no unforeseen consequences on the financial system.

Earlier today, a report from the New York Times uncovered that the federal regulators have subpoenaed eight major financial firms for information regarding the banks misleading the ratings agencies about the quality of the CDOs.

You May Also Be Interested In

• Northrim BanCorp to acquire PBCO Financial in $167M all-stock deal
• Arcus, AVEO to test kidney cancer drug combo in new trial
• Five Star Bancorp launches underwritten common stock offering