Trade-off weakens financial revamp

McClatchy Newspapers

WASHINGTON

In a compromise, lawmakers negotiating a sweeping rewrite of financial regulation agreed Tuesday to weaken tough language that was an attempt to rein in a conflict of interest that allowed both credit-rating agencies and the Wall Street banks that paid them to profit handsomely.

The conflict of interest emerges from the fact that companies pay the agencies to rate the bonds they sell. In the case of complex bonds, ratings-agency personnel often were advising the banks about slicing and dicing pools of mortgages.

Senators on a special negotiating panel that is trying to narrow the differences with parallel legislation from the House of Representatives agreed to delay for two years implementation of the tough language that passed the Senate last month.

That language — offered as an amendment by Sen. Al Franken, D-Minn., and passed with bipartisan support — would have prohibited Wall Street banks from handpicking ratings agencies when seeking investment-grade ratings for complex bonds backed by pools of mortgages.

Copyright 2010 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.