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Credit ratings can affect a company’s ability to raise or borrow money. They can also influence how much investors pay for securities.
The big three rating agencies _
The new rules, which were required under last year’s financial overhaul, would force agencies to provide more details about how they determine each rating. They would also bar the agencies’ sales people from participating in the ratings process. Agencies would also be required to review and potentially revise their ratings in cases where an employee was later hired by a company he or she rated.
A key problem with the process is that companies choose which firms rate them and then pay for those ratings, critics say. It’s like having a pitcher choose the umpire, they contend, and it puts pressure on the agencies to award better ratings in order to secure repeat business.
The new rules would also require the agencies to file a report each year showing how they monitor ratings, how each rating changed over time, and whether the securities or companies later defaulted. That would give investors a better idea of how accurate the ratings were,
Critics say a better solution would be to create a government board that randomly assigns agencies to rate companies.
The new regulatory law doesn’t prevent “an unmanageable conflict of interest,”
The big rating agencies say they voluntarily follow many of the proposed requirements.
Under existing federal regulations, analysts are already barred from taking part in discussions on fees to be charged for ratings services.
The public has 60 days to comment on the rules. After that, the
Earlier this year, the