House Panel Backs Axing Rating Liability

Committee approves repealing section of Dodd-Frank.

A U.S. House panel approved a measure to repeal a section of the Dodd-Frank Act blamed for freezing the asset-backed securities market last year.

The House Financial Services Committee approved the bill 31-19 over the opposition of the senior Democrat on the panel.

The measure “provides certainty for the asset-backed securities market,” said Representative Steve Stivers, an Ohio Republican who sponsored the bill that would remove a so-called “expert liability” requirement in the regulatory law.

The credit-rating change forced “the complete shut down” of the U.S. securitization market after Dodd-Frank was signed into law last year by President Barack Obama because firms didn’t consent to have their ratings in prospectuses, Tom Deutsch, the executive director of the American Securitization Forum, said in congressional testimony in May.

To restore activity in the market, the Securities and Exchange Commission issued two “no-action” letters allowing issuers of asset-backed bonds to omit credit ratings.

The bill would remove a provision in Dodd-Frank that subjects firms such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings to expert liability, meaning they face the same legal risks as accountants and other parties that participate in bond sales.

Credit-rating firms were targeted by lawmakers after they issued top rankings to mortgage-backed securities whose collapse helped spark the financial crisis.


“Sending the message here that we want to cut back some of the liability of rating agencies is absolutely as wrong-headed as we could be,” said Representative Barney Frank, the Financial Services Committee’s senior Democrat.

In separate action, the committee also approved a bill to require the Federal Deposit Insurance Corp.’s inspector general to conduct a study into the agency’s practices and procedures in resolving failed banks.

The measure would require an examination of the FDIC’s use of loss-sharing agreements to attract buyers for failed bank assets. In those agreements, the FDIC agrees to bear a portion of any losses on the assets. The study would also have to contain details of the agency’s dealings with private-equity firms looking to purchase failed banks.

The measure would require the FDIC inspector general to work with the Treasury Department and Federal Reserve inspectors general on the study.



Bloomberg News


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