Rating agency rule watered down

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- A proposed rule to stop financial firms from shopping for credit ratings will instead be postponed and studied, under an agreement finalized Wednesday by lawmakers negotiating a final Wall Street reform package.

The deal calls for a two-year study but then would mandate that the Securities and Exchange Commission adopt a system to independently match ratings agencies with firms that want securities rated.

The change is among the most controversial so far in two days of meetings of hammering out differences between House and Senate bills. Later on Wednesday, lawmakers also came to an agreement on new congressional reviews of the Federal Reserve.

The nation's largest ratings agencies -- Standard & Poor's, Moody's and Fitch -- have been under fire for their role in the financial crisis. The agencies gave top ratings to toxic financial products, like bonds backed by subprime mortgages. Lawmakers are most concerned with preventing financial firms from fishing for top-notch ratings.

Lawmakers, particularly Sen. Chris Dodd, D-Conn., were concerned that the credit rating agency curb, which passed overwhelmingly in the Senate, would be tough to carry out. The measure originally required the SEC to appoint an independent panel tasked with creating a random process that matched rating agencies with financial firms.

The new measure leaves the door open for the SEC to figure out a better way to match rating agencies with financial firms. But if it can't, the SEC is required to follow the original plan proposed by Sen. Al Franken, D-Minn., in two years.

Lawmakers on the negotiating committee said Franken indicated he could live with the agreement.

Rep. Barney Frank, D-Mass., said the House agreed to the measure on Wednesday.

The provision is not the only one in the Wall Street bill aimed at credit rating agencies. The final legislation is also expected to strip federal law of any provisions that suggest credit rating agencies' seal of approval is necessary.

Auditing the Fed: The House bill subjected the Fed to ongoing audits, while the Senate had ordered a one-time audit of the central bank's loans during the financial crisis.

The compromise lawmakers are agreeing to would subject the Fed to ongoing audits. But the audits would only review the Fed's emergency and cheap loans, as well as open market transactions.

Also, the compromise may force the Fed to publicly disclose who it makes loans to, after two years.

Also, Senate negotiators are leaning toward dropping a measure they had wanted that would have made the head of the New York Fed presidentially appointed, instead of chosen by New York banks. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,461.32 -153.49 -0.92%
Nasdaq 4,382.85 -36.63 -0.83%
S&P 500 1,927.11 -14.17 -0.73%
Treasuries 2.23 0.02 0.95%
Data as of 4:49am ET
Company Price Change % Change
Bank of America Corp... 16.40 -0.20 -1.20%
Yahoo! Inc 42.00 1.82 4.53%
Apple Inc 102.99 0.52 0.51%
Facebook Inc 78.37 -0.32 -0.41%
Boston Scientific Co... 12.32 0.29 2.41%
Data as of Oct 22

Sections

Las Vegas might have first class shopping, dining and nightlife. But for serious gambling, head to Macau. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Uber canceled its free rides with hot girls promotion in Lyon, France before it ever launched. More

Startups focusing on "ag tech," or agricultural technology, are gaining the attention of farmers and investors More

Dressing up in crazy costumes, traveling the world, posing for photos -- and getting paid to do it. Here are journal entries from a day in the life of professional "cosplay" character, Linda Le. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.