SEC to Consider Policy for Ratings Agencies

The SEC will hold a forum to examine policy responses to concern about the role of ratings agencies in recent economic events. The forum will be held on April 15th in Washington, DC.

Many analysts have observed that ratings agencies were somewhat offbase in their assessments of the soundness of debt held by some of companies that experienced significant write downs in the credit crisis.

A significant point of discussion should ascertain how inherent conflicts of interest can be resolved.  In most instances (save for unsoliticed ratings) credit agencies are paid by the very institutions that they are rating. In a universe where the three dominant ratings agencies (Standard & Poor’s, Fitch Ratings, and Moody’s) compete for business, this leads to the potential for less-than-objective analysis.

Mood’s had Lehman’s debt rated at A2 prior to its collapse last fall. It had AIG’s debt rated at Aa3 prior to its bankruptcy filing.