Senate Amendment Would Create Independent Securities Rater

The vote came a day after New York Attorney General Andrew Cuomo announced that he is starting an investigation aimed at determining whether eight investment banks provided misleading data to rating agencies in hopes of inflating the ratings of certain mortgage securities.

Today is seen as the last day for amendments to the legislation. Sen. Harry Reid, D-Nev., Senate majority leader, is expected to file a motion today calling for a Monday vote on limiting debate to an additional 30 hours. Few floor votes are expected tomorrow.

If cloture is attained, it would set up a final vote on the measure by next Wednesday.

Under the Franken amendment the Credit Rating Agency Board that would be created would include investors and independent regulators. The new body would assign a credit rater for a security.

In seeking support for his amendment, Sen. Franken said he wanted to end the "staggering conflict of interest affecting" credit ratings of securities by having an independent third party assign the credit rating agency that conducts the initial rating for newly issued complex financial products.

"My amendment puts investors in charge, not the government," he said.

In suggesting that the amendment be changed to call for a study of the issue, Sen. Dodd said that the bill he drafted already has, "Forty pages of safeguards to strengthen the SEC, empower investors, and to make rating agencies far more accountable and responsible."

Chris Atkins, a spokesman for Standard & Poor's voiced disappointment that the amendment had passed.

He said that the Franken amendment "could result in a number of unintended consequences."

He said that if the amendment ultimately becomes law, 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," he said.

"Most important, having the rating agency assigned by a third party, whether the government or its designee, could lead investors to believe the resulting ratings were endorsed by the government, thereby encouraging over-reliance on the ratings," he added.

Critical support for the amendment came from Republicans. Sen. Chuck Grassley, of Iowa, ranking minority member of the Finance Committee, supported the amendment, as did Sen. Roger Wicker of Mississippi.

Sen. Grassley said he is supporting the measure in order to end conflicts of interest.

"If the credit rating agencies are going to make a contribution to market integrity, then they can't be compromised," he said.

"This amendment creates a firewall so that a rating agency can be selected independent of an issuer," he said. "It goes after conflicts of interest between rating agencies and issuers, and that's a very important area where due diligence was missing leading up to the financial crisis of 2008," he added.