U.S. Securities and Exchange Commission staff recommended against creating identical terms and stress tests for credit-ratings, while supporting greater transparency on how grades are determined.
Given the difficulty with implementing such standards, "the staff believes it would be more efficient to focus on the rulemaking initiatives mandated under the Dodd-Frank Act, which, among other things, are designed to promote transparency," the agency's staff said in a report posted today on its website.
The Dodd-Frank financial reform act required the agency to consider requiring the use of the same ratings terms across asset classes that would match a range of default probabilities, and mandating companies including Moody's Investors Service and Standard & Poor's to use similar economic assumptions in stress tests.
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