Rating Agencies Tell Congress Increased Liability Is Unnecessary

Moody’s Corp. chief executive told lawmakers on Wednesday that his credit rating firm may agree to disclose some of its fees to regulators, but opposes a plan to impose greater liability on the sector.

At a hearing to examine a draft bill to toughen oversight of the industry, Moody’s CEO Raymond McDaniel said a provision to impose “collective liability” is unnecessary and could lead to more lawsuits.

“Moody’s and other (rating agencies) are in fact being sued as we speak,” he said in written testimony for a hearing of the U.S. House Financial Services Subcommittee on Capital Markets.

Lawmakers and regulators are seeking to hold credit raters more accountable after they helped fuel the financial crisis by assigning top ratings to mortgage-backed securities that later crumbled in value.

Under the draft bill being circulated by subcommittee chairman Paul Kanjorski, the rating agencies would be collectively liable for each others’ ratings.

“In any action against a nationally recognized statistical rating organization related to a credit rating issued by such organization that results in a monetary judgment for the plaintiff against such organization, the plaintiff is unable to recover the full amount of such judgment from such organization, all nationally recognized statistical rating organizations shall be jointly liable for the amount of such judgment,” the discussion draft reads.

McGraw Hill Cos. Inc.’s Standard & Poor’s President Deven Sharma told lawmakers that the new liability proposal would curtail availability of ratings to business.

In prepared testimony, Sharma said the company would back a new office at the Securities and Exchange Commission to oversee credit rating agencies and SEC power to impose “steep fines” for failing to comply with regulations.