WASHINGTON — The Senate took strong steps Thursday to fix a key cause of the recent financial crisis, approving measures to limit the ability of Wall Street firms to shop around for favorable ratings from now-discredited credit rating agencies.
Lawmakers approved two rating-agency amendments to a sweeping overhaul of financial regulation, despite objections from Senate Banking Committee Chairman Christopher Dodd, D-Conn.
Moody's Investors Service, Standard & Poor's and Fitch Ratings were all key players in the nation's financial meltdown, giving blue-chip ratings to complex mortgage-backed bonds that turned out to be junk.
A McClatchy investigation last October revealed how Moody's and its competitors sold out investors by trading their ratings for huge fees that came from rating complex deals.
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Sen. Al Franken, D-Minn., offered an amendment aimed at putting an end to this Wall Street behavior that passed on a bipartisan 64-35 vote.
Kansas Sens. Sam Brownback and Pat Roberts voted against the amendment.
"They shop around for their ratings. They select those agencies that tend to offer them the best ratings, and threaten to stay away from rating agencies that are too tough on them," Franken said.
His amendment would instruct the Securities and Exchange Commission to create a credit-rating board, composed mostly of investors, that would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages.
That would go further than Dodd's original proposal to create an office within the SEC that would regulate rating agencies and inspect them annually.
Rating agencies warned Thursday of unintended consequences.
"Credit rating firms would have less incentive to compete with one another, pursue innovation and improve their models, criteria and methodologies. This could lead to more homogenized rating opinions and, ultimately, deprive investors of valuable, differentiated opinions on credit risk," Ed Sweeney, an S&P spokesman, told McClatchy.