Today, the Securities and Exchange Commission (SEC) released the results of its inquiry into alleged conflicts of interest in the credit rating system, finding that conflicts do exist and were a contributing factor in the economic collapse of 2008. The SEC's report was required by an amendment Sen. Franken wrote into the 2010 Wall Street reform law.
"People all over the country, including thousands of Minnesotans, lost their homes or their life savings because of the greedy practices of Wall Street, and the credit rating agencies were a big part of the problem," said Sen. Franken. "I'm pleased that the SEC confirmed what I've always believed - that dangerous conflicts of interest continue to put investors at risk - and I'm going to work with the SEC to implement a solution to this problem."
Sen. Franken's bipartisan Restore Integrity to Credit Ratings amendment ordered the SEC to investigate allegations that banks and financial institutions are able to shop around among credit rating agencies in order to get the best rating. If the SEC can not develop a mechanism to address the conflicts of interest inherent to the process, Sen. Franken's amendment will create a board, overseen by the SEC, that will assign credit rating agencies to provide initial ratings.
Today's SEC report outlines three possible proposals to end the conflicts of interest inherent in the credit rating industry, and recommends that the SEC take action to determine which proposal should be adopted.
In August 2011, Sen. Franken authored an op-ed outlining why credit rating agency reform is a critical part of the Wall Street reform law passed by Congress in 2010.