The conference committee for Wall Street reform finally got around to the title on credit rating agencies, and we saw a lot of unanimity on the House side for the offer written by Barney Frank, which would retain the language removing references to credit rating agencies from the regulatory code, but which would cancel out the Franken amendment, which would change the issuer-pays model to one where an SEC office would assign initial ratings. The House offer passed on a voice vote with almost no opposition.
Republicans like Spencer Bachus, Jeb Hensarling, Scott Garrett, and Ed Royce all supported the language on removing all mentions of rating agencies and the “Good Housekeeping seal” of approval. They all seemed to support Barney Frank’s nullification of the Franken amendment, too. Jeb Hensarling in particular commended Frank for canceling out the Franken amendment, which he said would lead to the same “government-sanctioned cartel” that we currently have.
Republicans did disagree with portions of the Frank offer, but only on shouldering more liability on the rating agencies who failed during the financial crisis. Hensarling tried to make the argument that increasing the liability standard would reduce competition, which is needed for accuracy of ratings. But Mary Jo Kilroy (D-OH) responded that “we’re asking raters to be responsible for their gross negligence.” The House offer would eliminate section 436(g) and hold all rating agencies accountable under the liability standard similar to most of the rest of the financial industry.
Even the Democrats inclined to support the Franken amendment preferred to go the way of a two-year study, which is in the Frank offer, to see if something better than his SEC-assigning model could be determined. Brad Sherman (D-CA) actually carried something similar to the Franken amendment in the House Financial Services Committee, where it failed last year. But while he supports Franken’s amendment, after a strong speech saying we must end the issuer-pays model, and even saying “the American people expect the Franken amendment in the final bill,” he called for the study. Such a study would put the Franken amendment in place two years from now, “unless something better could be come up with.” Paul Kanjorski (D-PA) echoed this call for a study, even though he acknowledged that “the most substantial contributor to the crash was issuing so many AAA securities,” that a “hoax has been perpetrated on the American public” and that the issuer-pays model “is the problem.”
Everyone knows what a study means – it’s a delaying tactic in service to a tactic of denying. But that’s what the House conferees voted for, with basically no opposition. The ball is now in the Senate’s court to accept, reject, or come up with a counter-offer.
UPDATE: I should say that, in an ideal world, we would have no study but an immediate implementation of the Franken amendment, and the House language on liability for the rating agencies.