SEC Cracks Down on Credit Rating Agencies
December 18, 2008 by Lela Davidson
Filed under Finance
Americans’ credit happy spending habits may cause some to seek credit repair, but now it seems the credit rating agencies are the ones whose policies need an overhaul – at least when it comes to rating mortgage-backed securities.
On December 3rd, The Securities and Exchange Commission (SEC) approved a series of measures to increase transparency and accountability at credit rating agencies. The new rules ensure that firms provide more meaningful ratings and greater disclosure to investors.
Credit rating agencies’ ratings of residential mortgage-backed securities are responsible in part for the current credit crisis. The SEC performed an extensive 10-month examination of three major credit rating agencies and found significant weaknesses in their practices.
“These comprehensive rules touch every aspect of the credit rating process – from conflicts of interest, to publication of ratings methodologies, to disclosure of ratings track records,” said SEC Chairman Christopher Cox. “The SEC’s examinations of credit rating agencies uncovered serious deficiencies that these rules will address, so that investors and markets will have better information to guide investment decisions.”
You can have all the accounting standards in place, but it doesn’t really matter if these agencies we’re counting on for critical judgments are not unreliable.
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The lavish life style and spending spree of the Americans are the major cause of today’s credit crunch. No doubt, credit rating agencies must take a part of responsibility of the economic recession and the banks and other loan providing agencies should have been strict while giving resident loan.