"Since 1975, the Securities and Exchange Commission has limited competition in the market for credit ratings by anointing only certain firms as "Nationally Recognized Statistical Rating Organizations" (NRSROs). A 2006 law has begun to lead to faster approvals of new entrants, but this follows decades of protection for the incumbent firms. The SEC went an entire decade, beginning in 1992, without allowing a single new competitor into the market".
The result is that the two largest ratings agencies, Standard & Poor's and Moody's, are involved in the ratings of well over 90% of corporate bonds. Of course, the price for such services is much higher than it would be if they were broader competition.
The SEC is apparently begun to study regulations that would have a more direct impact on investment policies of financial institutions. Rather than requiring investments in securities receiving certain ratings from the NRSROs, they are creating new descriptions of what they want financial institutions to do. One professor has recommended elimination of the whole NRSRO designation:
"NYU professor Lawrence White recommended elimination of the NRSRO designation at a Senate hearing last fall. He forecast the results: 'The participants in the financial markets could then freely decide which bond rating organizations (if any) are worthy of their trust and dealings, while financial regulators and their regulated institutions could devise more direct ways of determining the appropriateness of bonds for those institutions.' "
The ratings agencies are proposing other forms of regulation that would not do away with include increased competition. It will be interesting to see how the SEC resolves this rather arcane issue.
The result is that the two largest ratings agencies, Standard & Poor's and Moody's, are involved in the ratings of well over 90% of corporate bonds. Of course, the price for such services is much higher than it would be if they were broader competition.
The SEC is apparently begun to study regulations that would have a more direct impact on investment policies of financial institutions. Rather than requiring investments in securities receiving certain ratings from the NRSROs, they are creating new descriptions of what they want financial institutions to do. One professor has recommended elimination of the whole NRSRO designation:
"NYU professor Lawrence White recommended elimination of the NRSRO designation at a Senate hearing last fall. He forecast the results: 'The participants in the financial markets could then freely decide which bond rating organizations (if any) are worthy of their trust and dealings, while financial regulators and their regulated institutions could devise more direct ways of determining the appropriateness of bonds for those institutions.' "
The ratings agencies are proposing other forms of regulation that would not do away with include increased competition. It will be interesting to see how the SEC resolves this rather arcane issue.
Posts
No comments:
Post a Comment