The House of Representatives (USA) passed a bill which repeals an exemption that credit rating agencies have enjoyed from the Securities and Exchange Commission’s Regulation Fair Disclosure.  No longer will they have access to corporate information that is denied to average investors.  

Two congressmen Barney Frank and Paul Kanjorski (D., Pa.) have produced legislation that is aimed to end the credit-ratings oligopoly.   The Frank-Kanjorski provision that recently passed the House not only eliminates all laws that require the use of these “Nationally Recognized Statistical Ratings Organizations.” The bill also instructs all the major financial regulators to remove such requirements from their rules.   Source: Wall Street Journal

BIIA Comment: If one is no longer required to use rating agencies, why regulate them?  It has been suggested many times by various people to eliminate the regulations governing credit rating agencies entirely.  The responsibility for credit or investment decisions would therefore lie entirely with the lender and investor and not with the rating agency.   What critics of the rating agencies often forget is the fact that rating agencies possess the critical mass in information and expertise to provide reasonably accurate risk assessment.   Regardless how hard lenders and investors will try, they will be hard pressed to muster such critical mass in order to make sound credit and investment decisions on their own.

BIIA Newsletter January 2010 Issue