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Can the U.S. Retain a AAA Rating?

S&P mulls a downgrade as Congress tries to limit the industry’s clout

The battle over raising the debt limit put Standard & Poor’s, the world’s biggest provider of credit ratings and other ratings services in an awkward spot: They are judging the creditworthiness of the U.S. government at the same time that Congress considers rules limiting the raters’ power. “This is the definition of a rock and a hard place,” says Peter Appert, an analyst at Piper Jaffray in San Francisco. “There’s no upside for the rating agencies in this debacle.”

Congress and federal regulators are discussing ways to implement the Dodd-Frank Act, which contains several provisions aimed at reducing the raters’ role in the financial system and creating more competition in the industry, dominated by S&P, Moody’s, and Fitch Ratings. In an April report, a Senate panel blamed raters for fueling the financial crisis, saying they engaged in a “race to the bottom” to stamp inflated grades on mortgage-backed securities.