Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

A Member of the Law Professor Blogs Network

Sunday, September 9, 2012

SEC Posts Study on Standardizing Credit Ratings

Section 939(h)(1) of the Dodd-Frank Act provides that the SEC shall undertake a study on the feasibility and desirability of:

• standardizing credit rating terminology, so that all credit rating agencies issue credit ratings using identical terms;
• standardizing the market stress conditions under which ratings are evaluated;
• requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress; and
• standardizing credit rating terminology across asset classes, so that named ratings correspond to a standard range of default probabilities and expected losses independent of asset class and issuing entity.

The SEC released its staff report on September 7.  In it, the staff reports its findings and recommends:

that the Commission not take any further action at this time with respect to: (1) standardizing credit rating terminology, so that all credit rating agencies issue credit ratings using identical terms; (2) standardizing the market stress conditions under which ratings are evaluated; (3) requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress; and (4) standardizing credit rating terminology across asset classes, so that named ratings correspond to a standard range of default probabilities and expected losses independent of asset class and issuing entity. In addition, given the difficulties commenters identified with respect to implementing the standardization that is the subject of the study, the staff believes it would be more efficient to focus on the rulemaking initiatives mandated under the Dodd-Frank Act, which, among other things, are designed to promote transparency with respect to the performance of credit ratings and the methodologies used to determine credit ratings.

http://lawprofessors.typepad.com/securities/2012/09/sec-posts-study-on-standardizing-credit-ratings.html

SEC Action | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0177449dc64d970d

Listed below are links to weblogs that reference SEC Posts Study on Standardizing Credit Ratings:

Comments

Post a comment