NEW YORK (CNNMoney.com) -- The U.S. Senate approved two amendments to the sweeping financial reform bill Thursday that seek to curb conflicts of interest between ratings agencies and Wall Street banks.
The goal of one of the proposals, called the "Restore Integrity To Credit Ratings" amendment, is to prevent the securities industry from shopping around among credit rating agencies for a security's initial rating.
Under that amendment, the Securities and Exchange Commission would appoint a panel to develop a system that would independently match ratings agencies with firms that have securities that need to be rated.
The board would largely be made up of investors. But it would also include representatives from the securities industry and the ratings agencies, as well as one independent member.
"Today is a major victory for Main Streets all over America," said Sen. Al Franken, D-Minn., who authored the amendment. "We're cleaning up Wall Street's dishonest system and replacing it with one that rewards accuracy instead of fraud."
The nation's main ratings agencies -- Standard & Poor's, Moody's and Fitch -- have come under fire recently for contributing to the financial crisis of 2008-2009 by assigning top-tier ratings to securities that later proved to be toxic, such as bonds backed by sub-prime mortgages.
Last month, a Congressional panel released a slew of internal e-mails from the leading credit rating agencies that showed employees at those firms knew of the dangers in subprime mortgages, but gave securities backed by them the seal of approval anyway.
At the same time, New York Attorney General Andrew Cuomo has opened an investigation into some top financial firms to determine whether they misled credit rating agencies to obtain better ratings.
However, Sen. Chris Dodd, D-Conn., who is leading the effort to overhaul the nation's financial regulatory framework, voted against Franken's amendment.
"I like what Al was offering on this," Dodd told reporters in Washington. "Except that I just didn't know the outcome of it."
He described the proposal as "a sort-of wheel of fortune," and said he was "uneasy" about how it would work.
Separately, the Senate approved an amendment that would "remove the government seal of approval from investment ratings agencies" by eliminating legal protections for them, according to the amendment's authors. The aim is to end the "over-dependence" on ratings agencies as the financial industry's main risk auditor.
That proposal is similar to one the House included in the Wall Street reform bill passed late last year.
"An investment rating should mean something, but today it doesn't," said Sen. George LeMieux, R-Fla., who authored the amendment. "Removing their federal endorsement will end the dangerous over-reliance on these ratings and allow sound measures of risk to re-emerge in the marketplace -- giving investors confidence an investment's true risk is known."
Dodd said he is concerned that LeMieux's amendment may have "undercut entirely" the need for Franken's proposal.
"I'm not even sure the Franken amendment exists any longer in light of the LeMieux amendment," said Dodd. "It basically did away with all this."