The Financial Crisis Inquiry Commission, which examined the causes of the financial and economic crisis of 2008, concluded that “the failures of credit rating agencies were essential cogs in the wheel of financial destruction” and the “three [dominant] credit rating agencies were key enablers of the financial meltdown.”1 Criticism of the conduct and competence of credit rating agencies (CRAs) after 2008 focused on the huge number of write-downs of highly rated residential mortgage-backed securities and collateralized-debt obligations, but critical scrutiny of CRAs had been ongoing since the late 1990s.
In 2006, Congress passed the Credit Rating Agency Reform Act,2 which gave the Securities and Exchange Commission (SEC) limited regulation of CRAs. The Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank)3 mandated much more regulatory oversight. This column will review the provisions of Dodd-Frank applicable to CRAs and the progress of the SEC in implementing those provisions.
