Lawmakers focus on credit raters

Associated Press

WASHINGTON

Lawmakers rewriting financial regulations took aim Friday at credit-rating agencies, whose analysts often gave safe ratings to risky investments that contributed to the financial crisis.

Sen. Carl Levin, D-Mich., said the Senate’s regulatory overhaul should go further to curb the industry’s inherent conflicts of interest: The agencies are paid by the banks whose investments they rate. And banks generally want higher ratings to make the securities they offer more attractive to investors.

At a hearing Levin headed Friday, former executives acknowledged that competition within the industry often led the agencies’ analysts to rate high-risk securities as safe.

Levin suggested the co-dependent relationship between the agencies and the banks is a dangerous flaw in the financial system.

The Senate next week is expected to take up a version of the financial regulatory legislation that would require only a study of the industry’s conflict of interest. The House-passed bill would go further. It would instruct the Securities and Exchange Commission to produce a policy that would either bar the conflicts or require the agencies to disclose their relationships with banks.

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