Credit Rating Agencies and Congress

Implications: The Credit Rating Agencies came under fire in two Congressional hearings this week. While it is still unlikely that Congress will pass substantive legislation affecting S&P, Moody's or Fitch, pressure on the SEC is mounting. One can expect the SEC to modify its regulations to require increased transparency, at the very least.

Analysis: The Credit Ratings Agencies, S&P, Moody's and Fitch, were subject to intense scrutiny during two Congressional hearings this week.  In the House hearing, one senior Democratic alleged collusion with issuers and illegal conduct.  Chairman Cox of the SEC stated that the agency was examining the Credit Rating Agencies for conformance with the rules issued under the 2006 Reform Act.  It is likely that the SEC will ultimately amend its regulations to require increased disclosures (transparency) and more detailed information on performance of rated issuances.  Other regulatory changes may well add to the administrative costs of the Credit Rating Agencies and increase competition by easing the entry of new players.