As regulators remove references to credit-rating firms from federal rules, institutional investors should also rethink how they use the ratings, U.S. Securities and Exchange Commission Chairman Mary Schapiro said.
“If your documents require a specific rating by a specific rating agency I urge you to revisit it,” Schapiro said today at a meeting of the American Securitization Forum in Washington. If investors can’t buy securities rated by new firms, she said, “how will more competition that may improve the quality of ratings develop?”
Last year’s Dodd-Frank Act required government agencies to rid their regulations of references to credit raters after the firms were accused of contributing to the 2008 credit crisis by giving top ratings to mortgage-linked bonds that later collapsed in value.
Schapiro also said that investors are waiting for reforms in the securitization market “before they are willing to wade back in.”
“Efforts to implement the reforms that would bring investors back to the markets are being met with strong and what I believe to be short-sighted resistance,” Schapiro said. “We should not weaken reform for short-term gain.”
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