Credit Rating Agencies: Current Federal Oversight and Congressional Concerns

Publication Date: August 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

Credit rating agencies rate the creditworthiness of public companies so that the public will have an objective opinion as to the risk of investment. These ratings have become an important component of the financial reputation of a rated company. However, especially since the bankruptcies of Enron and WorldCom, whose debt had been rated investment grade, there has been concern that perhaps credit rating agencies should be regulated. Section 702 of the Sarbanes-Oxley Act of 2002 required the Securities and Exchange Commission to study the role of credit rating agencies. Over the years, the SEC has issued reports and proposed rules, in particular concerning adoption of a definition for the term "nationally recognized statistical rating organization," but no statutory or regulatory requirements have been enacted or issued. Congress may, however, continue to pursue the issue of regulation, since hearings have been held on the issue and proposed legislation has been introduced. This report will be updated as needed.