The careers of credit analysts in the big three credit rating firms dodged one bullet that aimed at their core business of grading companies' ability to repay debts. Now some of them are staring down the barrel of a new gun that the SEC just pointed at the rating firms' mandate to grade asset-backed securities, which at one time accounted for more than half their revenue.
The New York Times reports:
Credit rating agencies would lose their formal role in evaluating certain bonds backed by consumer loans, like home mortgages, under rules proposed on Wednesday by the Securities and Exchange Commission. Instead, the companies issuing these bonds would have to vouch for their soundness.
Comissioners voted unanimously to seek public comment on the the proposal. SEC Chair Mary Schapiro acknowledges it would be a "fundamental revision" to the present system for regulating asset-backed securities.
The plan includes removing a current rule that ABS issued through a shelf offering carry an investment-grade rating from a recognized credit rating firm. That could amount to a significant blow to the rating agencies, the Times observes. If implemented, the changes could also dampen prospects for revived issuance of ABS altogether.
S.E.C. Moves to Tighten Rules on Bonds Backed by Consumer Loans [NY Times]
Wall Street Bonus Tax Should Be Considered, Liu Says [Bloomberg News]
Former Times Reporter Stephen Labaton Lands With Goldman [NY Observer]
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