[Congressional Record Volume 152, Number 90 (Wednesday, July 12, 2006)]
[House]
[Pages H5080-H5094]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CREDIT RATING AGENCY DUOPOLY RELIEF ACT OF 2006
The SPEAKER pro tempore. Pursuant to House Resolution 906 and rule
XVIII, the Chair declares the House in the Committee of the Whole House
on the State of the Union for the consideration of the bill, H.R. 2990.
{time} 1323
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(H.R. 2990) to improve ratings quality by fostering competition,
transparency, and accountability in the credit rating agency industry,
with Mr. Boozman in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered read the
first time.
The gentleman from Ohio (Mr. Oxley) and the gentleman from
Pennsylvania (Mr. Kanjorski) each will control 30 minutes.
[[Page H5081]]
The Chair recognizes the gentleman from Ohio.
Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, in response to the largest corporate scandals in U.S.
history, Congress passed the Sarbanes-Oxley Act strengthening the role
of gatekeepers such as auditors, boards of directors, audit committees,
and equity analysts. We now turn our attention to another gatekeeper,
the credit rating agency, and Congressman Fitzpatrick's H.R. 2990, the
Credit Rating Agency Duopoly Relief Act.
Credit ratings serve a vital function in our capital market system,
providing investors with an understanding of the creditworthiness of
corporations and municipalities with respect to debt and other
securities. As evidenced by the failures in the rating of Enron and
WorldCom, who were given investment grade ratings by Moody's and
Standard & Poor's just days before declaring bankruptcy, the credit
rating industry is in drastic need of increased competition and
improved transparency.
Currently, the SEC designates ratings agencies as nationally
recognized statistical ratings organizations, or NRSROs, through an
opaque process that provides applicants little guidance on the
substance and procedure by which they will be evaluated. Currently,
only five rating agencies are designated as NRSROs by the SEC.
Understandably, many more aspire to attain that designation, as NRSRO
status confers a significant competitive advantage. However, new
applications often languish for years without an up or down vote on
admission into this elite club. In fact, the Department of Justice
commented upon the SEC designation process in 1998, calling it a
``nearly insurmountable barrier to entry.''
The SEC's opaque designation process has created an artificial
government-sponsored barrier to entry that has stifled competition and
helped the two top rating agencies, Moody's and Standard & Poor's,
garner some 80 percent of the market share. Without true competition of
this industry, fees have skyrocketed and ratings quality has
deteriorated. To put it mildly, this is not a transparent and efficient
mark with robust competition.
Wanting to understand an industry with such a significant impact on
the markets, Congress directed the SEC to examine credit rating
agencies as part of the Sarbanes-Oxley Act. Since the release of the
SEC's report on rating agencies in January 2003, the Committee on
Financial Services and its Subcommittee on Capital Markets, Insurance
and Government-Sponsored Enterprises through its chairman, Richard
Baker, have held five hearings on this subject, two of those hearings
focused on H.R. 2990. Witnesses from the SEC, industry, academia, think
tanks, and the rating agencies themselves echoed the problem areas
highlighted by the SEC; namely, barriers to entry leading to a lack of
competition, conflicts of interest, poor transparency of agencies'
rating methodologies, and a lack of accountability. Mr. Fitzpatrick's
bill is the product of this comprehensive examination.
In his testimony of this past May before the Committee on Financial
Services, our former colleague, SEC Chairman Cox, expressed support for
the goals of H.R. 2990, and requested enhanced authority in this area.
In a June 2006 letter to Ranking Member Kanjorski, Mr. Cox stated,
``You also asked whether the quality of credit ratings concerns me. My
answer is most assuredly yes. In fact, transparency, competition, and
greater oversight, the principles I mentioned during my testimony
before the House Financial Services Committee on May 3, 2006, are, in
my view, important means to achieve the end of ensuring the high
quality of credit ratings.'' The principles cited by Mr. Cox are the
very principles of Mr. Fitzpatrick's legislation before us.
In addition, SEC Commissioners Paul Atkins and Cynthia Glassman have
expressed their disapproval with the current designation system, and
Mr. Atkins has expressed support for a registration approach like the
one embodied in this bill. SEC Commissioner Roel Campos has also
expressed a need for legislation that deals with conflicts, increased
transparency, and provides for SEC examination.
Mr. Fitzpatrick's bill follows the regulatory regimes applied to
broker-dealers and investment advisors. In doing so, it rejects
regulation controlled by the SEC in favor of the market-based approach
that has driven our securities laws since the 1930s.
H.R. 2990 removes the SEC's designation process, and in its place
gives rating agencies who have issued ratings for 3 years the option of
registering as NRSROs. A voluntary registration system will level the
playing field for all rating agencies and inject much needed
competition into this industry. As we have seen time and time again in
other markets, true competition begets lower prices and better
performance. When dealing with investor protection, it is all the more
critical to ensure that healthy competition exists, yielding more
accurate and reliable ratings.
In addition, H.R. 2990 promotes transparency and empowers investors
by requiring registrants to disclose the methodologies by which they
generate ratings. It requires rating agencies to provide short, medium,
and long-term performance statistics, and to make all information and
documents submitted to the SEC publicly available. This will give the
market a clearer understanding of the agencies that are rating debt.
The bill also requires that rating agencies maintain a chief compliance
officer to oversee compliance with the securities laws and protects
market stability, providing that the voluntary regime will not go into
effect until January 2008.
To insulate the rating agencies from overreaching legislation, H.R.
2990 affirms that the Federal Government may not intrude into rating
agencies' methodologies or the ratings process.
Finally, I have concerns about the conflicts of interest which plague
this industry. Ratings firms have expanded into new areas which, many
commentators have suggested, further compromise their objectivity.
{time} 1330
In addition, it has been alleged that leading rating agencies engage
in certain abusive practices to the detriment of smaller market
players. H.R. 2990 requires disclosure of conflicts of interest and
prohibits such anti-competitive practices.
The many hours that the Committee on Financial Services and Mr.
Fitzpatrick have spent on this issue have shown the problems cited by
the SEC report are best rectified through a system of voluntary
registration open to all eligible rating agencies. This will eliminate
barriers to entry, promote competition, and do so using the least
restrictive means of regulation.
I urge all Members to support this important bill.
Mr. Chairman, I reserve the balance of my time.
Mr. KANJORSKI. Mr. Chairman, I yield myself such time as I may
consume.
Mr. Chairman, our capital markets rely on the independent assessment
of financial strength provided by credit raters. The bill before us,
however, would decrease the quality of credit ratings because it would
dramatically alter the way in which government identifies entities to
issue the credit ratings used for essential regulatory purposes. I
therefore oppose H.R. 2990.
In the 1970s, the Securities and Exchange Commission created
nationally recognized statistical rating organizations. It is not a
very sexy term and not well understood, but those are the little
fellows that are called in to evaluate bonds and all types of
instruments of debt and other materials that are sold throughout our
financial system to pension funds and all others. They created these
organizations in a rulemaking on the capital levels that brokers and
dealers must hold. Since then, the term, with its inference to quality,
credible, and reliable ratings has become embedded in numerous Federal,
State, and local statutes, rules, and regulations.
Many private parties have also included references to ``nationally
recognized'' agencies in the terms of their contracts, corporate
bylaws, and pension trust agreements. Foreign governments and
international bodies have used the concept in their accords and codes,
too. In considering any bill to modify the process for identifying
``nationally recognized'' agencies, we must, therefore, keep in mind
the need to maintain high quality ratings. It is this credible and
reliable standard on
[[Page H5082]]
which investors rely. We should not lightly abandon this standard.
Critics of the present designation system have raised legitimate
concerns about competition. I agree with the supporters of H.R. 2990
that increasing competition in the credit ratings used for regulatory
purposes is a desirable goal. I further agree that the current
designation process should be improved.
To achieve its objectives of greater competition, however, H.R. 2990
seeks to make statutory changes that will come at a dangerous cost. The
bill, through its voluntary registration regime, will increase the
number of ``nationally recognized'' agencies without providing
sufficient authority to assure the issue ratings are credible and
reliable. We must achieve equilibrium in these matters by balancing the
desire to increase the quantity of approved credit raters with the need
to ensure that their ratings are of a consistently high quality.
The minimum standard set forth in H.R. 2990 that allows any credit
rater to obtain the ``nationally recognized'' designation after 3 years
of experience are akin to granting a driver's license to anyone who
meets a 3-year residency requirement. We know, however, to keep our
roads safe, every potential driver must pass one or more quality
assurance tests administered by a third party before getting a license.
Why should we hold those rating agencies that serve as gatekeepers to
our capital markets to a lower oversight standard?
Investor advocates have also concluded that quality should be an
important factor in identifying ``nationally recognized'' agencies. The
AFL-CIO, for example, has noted that replacing the concept of approved
raters, ``with a mere registration process without substantive
oversight will be harmful to investors,'' and ``ultimately to the
functioning of our credit markets.''
In a recent letter, the Consumer Federation of America has
additionally observed that the central provision of H.R. 2990 is
``fatally flawed.'' In competitive markets, ``some credit rating
agencies will invariably compete based on the leniency of their ratings
methodology. That is not good for investors or for the integrity and
efficiency of the markets.''
Moreover, H.R. 2990 could allow history to repeat itself. In the wake
of the savings and loan crisis, we required that the debt securities
held in portfolios by financial institutions must be of investment
grade as determined by a ``nationally recognized'' agency.
I may point out, in response to my colleague, the chairman of my
subcommittee, Mr. Baker, he seemed to indicate that the cause of the
S&L disaster was that the rating agencies made mistakes. Quite to the
contrary. The disaster was that the rating agencies were not used to
determine investment grade instruments held in their portfolios, and
that only occurred after the S&L disaster.
This bill's failure to ensure that such ratings continue to be
credible and reliable could one day create another regrettable
situation whereby the taxpayers need to finance a bailout of the
deposit insurance funds. Moreover, this legislation threatens the
strength of the Securities Investors Protection Corporation, which
protects investors against fraud.
Less than 4 years ago, Congress wisely adopted the standards in the
Sarbanes-Oxley Act to strengthen financial reporting, restore investor
confidence, and assure the integrity of our capital markets. In an
effort to promote competition, however, H.R. 2990 would weaken the
quality of our ratings, thereby damaging investor confidence and the
integrity of our markets going forward. It is, in other words, a step
backwards.
In sum, Mr. Chairman, I find such developments are highly regrettable
today and I urge my colleagues to reject H.R. 2990.
In response to the chairman of our committee's quoting from a letter
addressed to me by Chairman Cox, our former colleague, he failed to
read the second paragraph of Mr. Cox's letter, under part B. He
properly read the first phase, and I won't repeat that, but Mr. Cox
said, ``In the weeks and months ahead, the commission,'' speaking of
the Securities and Exchange Commission, ``and its staff will continue
to consider potential ways by which we can help facilitate the issuance
of high quality ratings using our existing regulatory authority,
including the adoption of an existing rulemaking proposal in some form
or other approaches,'' thus indicating that the SEC has not had the
opportunity to fully address this problem.
The SEC has not been called to testify before the committee on the
consideration of this bill, and the fact is that of the five hearings
held by this committee, at least four of the five occurred without the
concept of the piece of legislation we are considering today.
I sympathize with the makers of this. I know they want to do the
right thing. But speed to get a bill passed, to create an on-demand
registration of a new entity that is so critical to trillions of
dollars of instruments of debt should not pass this House without
realizing the potential consequences, and they are great.
I concede rating agencies that exist today have made mistakes in
Enron and WorldCom, but I recall, and I guess I have served on the
committee a little longer than most, but Mr. Oxley was certainly in the
Congress, not on the committee at the time, but during the S&L
disaster, I recall a very famous American, who is an economist and
served in very high appointive office in the Federal Reserve,
testifying before our committee that he had evaluated, for a
professional fee, 20 entities, S&Ls, and had found them to be sound.
Many of them failed within 4 months of his evaluation. Actually, 19 of
the 20 he evaluated failed.
This is not kid's play. This is not a bean bag. This is very serious
rating information that investors across the country, indeed across the
world rely upon. Quality is clearly as important as quantity. We can
have both. Just taking a greater consideration and using the expertise
and availability of the Securities and Exchange Commission may do us
well.
Mr. Chairman, I reserve the balance of my time.
Mr. OXLEY. Mr. Chairman, I am now pleased to yield 2 minutes to the
gentleman from Georgia (Mr. Price), a valuable member of the committee.
(Mr. PRICE of Georgia asked and was given permission to revise and
extend his remarks.)
Mr. PRICE of Georgia. Mr. Chairman, I want to thank the chairman and
the subcommittee chairman for their leadership on this issue, and I
want to thank Mr. Fitzpatrick, the gentleman from Pennsylvania. I
appreciate his leadership on this and on so many other issues. The
citizens of Pennsylvania are truly fortunate to have you fighting for
them, and I am honored to call you a colleague and a friend.
Mr. Chairman, this bill, H.R. 2990, addresses credit ratings, or
judging the financial worthiness of companies. Credit ratings play a
real and significant role in our economy. Investors rely on these
ratings to determine risks of default of companies, both large and
small, as well as governmental entities. Currently, these ratings are
often the determining factor as to whether companies and, hence jobs,
will expand, or whether local governments are able to finance major
municipal improvement projects.
Presently, competition is severely lacking among credit rating
agencies, as there are only five companies designated by the SEC. The
current process fails to provide a reasonably clear path for potential
new rating agencies. H.R. 2990 solves this problem by establishing an
unambiguous registration process with appropriate oversight to ensure
integrity and reliability in the rating process.
In addition to facilitating competition, the legislation would
provide critically important information currently not available to
investors. The bill would require disclosure of ratings processes so
investors can better evaluate the quality of the ratings themselves.
Further, rating organizations would be required to publicly disclose
their policies relating to conflicts of interest and their
organizational structure. Finally, they would be held accountable for
ratings they issue if they don't follow their disclosed policies.
Mr. Chairman, these are all extremely important advances and
improvements for our entire economy, and I urge adoption of H.R. 2990.
Mr. KANJORSKI. Mr. Chairman, I yield 4 minutes to the gentlewoman
from New York (Mrs. Maloney).
Mrs. MALONEY. Mr. Chairman, I thank the gentleman for yielding and
[[Page H5083]]
for his leadership, and I rise in opposition of the underlying bill,
H.R. 2990, and in support of the Kanjorski substitute.
I believe that all of us in this body support the promotion of
healthy competition and improved transparency and accountability and
independence in the rating agency industry. I certainly am concerned
about the transparency and accountability of the industry. However, I
believe that this particular bill will do more harm than good.
While the bill has been somewhat improved through various manager's
amendments, I still have serious concerns regarding the bill that is
before us. The bill contains a free-for-all in the ratings market
without the usual market protections against abuse. For example, the
bill allows almost anyone to register as a rating agency and issue
ratings, but insulates rating agencies from lawsuits.
The fact that the bill does not provide adequate rating quality
assurance is of grave concern to me for safety and soundness. Taking
away the SEC's seal of approval for rating agencies will cause
investors to possibly lose confidence in the markets because they are
rightly concerned about ratings shopping or simply inaccurate ratings.
We spent the last several years working to overcome the crisis in
investor confidence caused by corporate governance scandals, and this
is absolutely not the time for taking risks in this area.
{time} 1345
Mr. Chairman, I also have procedural concerns regarding how this bill
was advanced through the committee on which I serve. As you know, the
SEC was not asked to participate in either of the two hearings that
this committee held on this legislation. And given the role that the
SEC plays now in effectively overseeing rating agencies and the role it
will play in administering this legislation, I think we should receive
testimony from them before taking legislative action.
This is a very complicated issue that could have a tremendous effect
on the capital markets both here and abroad. I note that other
international regulators have recently taken a very different approach
than the one advocated by this bill.
While I am not prepared today to say which approach is better, I
think it would be prudent for us to learn more from the SEC and other
international regulators on credit rating agencies, and to determine
whether we want to move towards greater international harmonization of
standards, as opposed to going forward with this new change.
Simply put, before rushing to judgment, we need to better understand
all of the impacts that could result from our actions here today.
Rushing this bill to the floor is not the way to reach sound public
policy. We need to understand all of the consequences of this change
and the effect it will have on the quality of our rating agencies.
So I urge my colleagues to oppose H.R. 2990 and to support the
Kanjorski amendment.
Mr. OXLEY. Mr. Chairman, I yield 2 minutes to the gentlewoman from
Pennsylvania (Ms. Hart).
Ms. HART. Mr. Chairman, I thank the gentleman for yielding me this
time.
I had been a member of the Financial Services Committee, the
gentleman's committee, and have worked on a number of different issues
with him. I respect the work he has done on this issue, and also the
sponsor, Mr. Fitzpatrick's work, and I rise in support of the bill.
The Credit Rating Agency Duopoly Relief Act will provide more
transparency. For far too long only two rating agencies have had 80
percent of the market share. That is because they have an advantage
under the current system. This bill will bring more competition and
innovation into the credit rating agencies. This is extremely
important. In the markets of today where we have had questions about
the veracity of reported information, we need more competition among
agencies and more transparency.
While there are 130 credit rating agencies in the financial markets,
only five are designated as nationally recognized statistical rating
organizations. Blocking competition in the marketplace and stifling
innovation is never a good thing. Our laws should encourage open
competition and a fair marketplace.
The basic principles of competition and fairness make our marketplace
dynamic, and credit rating agencies should not be immune to these
principles. By blocking entry to the market, mistakes have been made.
The current certified agencies listed Enron as a safe investment and
WorldCom as investment grade quality right before they filed for
bankruptcy.
As a former member of the Financial Services Committee, I have worked
closely on these issues surrounding both Enron and WorldCom after the
collapse, and I am pleased we are taking this commonsense approach to
strengthen our markets and provide consumers with more choice, more
transparency and more responsible information.
Specifically, this bill will open the credit rating agency market by
ensuring that more agencies will be able to get this national rating,
ending the current requirement to specific business models. Encouraging
competition and transparency in this industry will improve quality, and
that is always better for the market.
Mr. KANJORSKI. Mr. Chairman, I yield such time as he may consume to
the gentleman from Massachusetts (Mr. Frank), the ranking member of the
Committee on Financial Services.
Mr. FRANK of Massachusetts. Mr. Chairman, I thank the ranking member
of the subcommittee for his leadership on this. The goals here do not
divide us; the methods do. Maybe it is a little bit of a role reversal,
but I think, as the gentleman from Pennsylvania has made clear, we
believe that the SEC ought to be relied on more fully here.
I understand the SEC supports the goals of this. We support the goals
of this. The critical question is the implementation. We think this
prematurely takes some decision-making that we ought to await for SEC
input. We are talking about a very tough decision to make here. It is a
lot of power to give an entity to be a rating agency.
People have alluded to the great power the two existing ones have. It
is important that we have complete assurance for ourselves that the
process we put in place for new rating agencies be very thoroughly
checked out and very much prevented against abuse. Competition is a
good thing, but not competition that could be a race to the bottom; and
we regard SEC as an important part of this.
That is why the substitute that my friend from Pennsylvania has holds
off on making some of these decisions, we believe, too hastily, and
instead more deeply involves us with the SEC. We are not talking about
waiting 5 or 10 years, but it seems imprudent to go forward without
waiting for a full deliberation from the SEC.
There are other companies eager to get into the business, but the
fact that other companies are eager to get into the business should not
be driving us any more than the reluctance of the existing companies to
have new people in the business. Both sets of considerations should not
be driving us, neither to protect the existing businesses nor to enable
the new ones.
What we ought to be doing is focusing on the public policy process
for deciding who gets to do this, and we do not believe we are yet at
the point where we can do that in the ideal fashion, and we will be
better off if we wait for the SEC to give us its guidance.
Mr. OXLEY. Mr. Chairman, I yield 8 minutes to the author of the
legislation, the gentleman from Pennsylvania (Mr. Fitzpatrick).
Mr. FITZPATRICK of Pennsylvania. Mr. Chairman, I thank Chairman Oxley
and subcommittee Chairman Baker for their considerable leadership on
this issue.
There have been no less than five hearings over the last two terms of
Congress, dozens of witnesses and approaching 1,000 pages of
transcribed testimony, all pointing to the unavoidable conclusion,
which is that it is vital that Congress bring competition, transparency
and accountability to the credit rating industry in this Nation.
Mr. Chairman, credit rating agencies have been issuing ratings on the
likelihood of an issuer's default on debt payments since the early 20th
century. Today, credit rating agencies rate companies, countries and
bonds. Despite being often underestimated and overlooked, their power
is immense. Credit
[[Page H5084]]
rating agencies have a great impact on the bottom line of companies,
municipalities and school districts. The better the credit rating, the
lower the interest rate that the borrower must pay.
This expansive influence finally came into question because of the
recent corporate scandals and the fact that the two largest NRSROs,
Standard & Poor's and Moody's, rated Enron and WorldCom at investment
grade just prior to their bankruptcy filings. Essentially, they told
the market that Enron and WorldCom were safe investments, even though
their problems were very apparent in the marketplace. As a result,
reforming the rating agency industry has been the subject of much
debate in the House Committee on Financial Services.
S&P's and Moody's monitoring and reviewing of Enron and WorldCom fell
far below the careful efforts one would have expected from
organizations whose ratings hold so much importance. And Enron and
WorldCom were not their only problems. But what are the other options
that are out there?
There are 130 credit rating agencies in the financial market;
however, only five are rated and designated as NRSROs by the SEC. This
label is the root of the problem. The SEC coined the term NRSRO without
defining it in its 1975 rule on net capital requirements when it
obligated broker-dealers to hold more capital for those bonds rated
junk by a NRSRO. Since then, other regulators in the private investment
community have taken up the term, but also without defining it. As a
result, credit ratings matter only if they are issued by an NRSRO.
The commission still has never defined the term, and it has been over
30 years. It is more than naive to assume that the SEC will actually
define it now. Their track record is not encouraging.
To receive the illusive distinction, companies must be nationally
recognized. This artificial barrier to entry has created a chicken-and-
the-egg situation for non-NRSRO credit rating agencies trying to enter
this industry. As a result of the artificial barrier to entry, there
are only five NRSROs. Reputable credit rating firms have been unable to
receive this distinction after trying for as long as a decade. Firms
like Egan Jones in my home State of Pennsylvania receive no explanation
from the SEC because no process actually exists.
This SEC-imposed barrier to entry has consolidated the industry, thus
fostering a duopoly. Moody's and S&P enjoy over 80 percent of the
market share and rate 99 percent of the debt in the market. As a
result, Moody's and S&P are raking in record fees. Since 2000, Moody's
and S&P have earned average annual returns on assets of 37 and 39
percent respectively over a 6-year period. This compares to the average
return on assets over the same period earned by U.S. manufacturing
firms of less than 5 percent per year.
These excessive profits are government-granted to those two NRSROs by
virtue of the special status granted to them by the government. As a
result of this lack of competition, the quality of ratings has
decreased, prices are inflated, innovation has been stifled, and
anticompetitive industry practices have been allowed in conflicts of
interest, like tying, notching and unsolicited ratings, have gone
unchecked.
Mr. Chairman, in the wake of the seminal failure by S&P and Moody's
in the WorldCom and Enron scandals, we must ensure integrity in the
credit rating process. H.R. 2990 would inject greater competition,
transparency and accountability in the credit rating industry. As a
result, prices and anticompetitive practices will be reduced, credit
rating quality will improve, and firms will be forced to innovate.
This view is shared by the Bond Market Association, the Association
for Financial Professionals, the Financial Executives International,
Investment Company Institute, and The Financial Services Roundtable,
and I will submit their letters of support for the Record.
Mr. Chairman, there is a lot of talk in this town about reform and
transparency and managing conflicts of interest. This bill, I would
submit, meets each of those challenges, and I would like to leave you
with a quote right from the horse's mouth.
The SEC stated: ``The greater competition in the market for credit
ratings and analysis could provide for more credible and reliable
ratings, and greater competition could also stimulate innovation in the
technology and methods of analysis for issuing credit ratings, which
could further lower barriers to entry.''
I submit H.R. 2990 would do just that. I strongly urge a ``yes'' vote
on H.R. 2990 to ensure integrity in the credit rating industry.
The Bond Market Association,
July 10, 2006.
Hon. Michael Fitzpatrick,
House of Representatives,
Washington, DC.
Dear Representative Fitzpatrick: I applaud your efforts on
legislation to reform the credit rating agency industry. The
significant growth in the global capital markets in recent
years has increased the importance of credit quality
analysis. Boosting competition among credit rating agencies,
as your legislation, the Credit Rating Agency Duopoly Relief
Act (H.R. 2990), seeks to do, assures this critical industry
will remain robust and innovative.
I appreciate that the version of H.R. 2990 approved last
month by the House Financial Services Committee addresses
concerns of Association members with an earlier version of
the legislation. Specifically, the bill would no longer
compel registration of a credit rating agency with the
Securities and Exchange Commission. The amended version of
H.R. 2990 also expands the definition of credit rating agency
to include any person in the business of issuing credit
ratings on the Internet or other readily accessible means for
free or for a reasonable fee. Association members viewed the
previous legislation as both too narrow--deeming a rating
public only if it was disseminated on the Internet--and too
broad--including companies who produce ratings not used for
regulatory purposes. The changes included in the new
legislation will help foster competition in the industry.
Again, I commend your leadership on this important issue.
We support H.R. 2990 and look forward to speedy action on the
bill in the House.
Sincerely,
John R. Vogt,
Executive Vice President.
____
Association for Financial
Professionals,
Bethesda, MD, July 10, 2006.
Hon. J. Dennis Hastert,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives,
Washington, DC.
Dear Mr. Speaker and Madam Leader: On behalf of the 15,000
members of the Association for Financial Professionals (AFP),
I urge the House to approve the ``Credit Rating Agency
Duopoly Relief Act'' (H.R. 2990) that the House Financial
Services Committee recently approved by voice vote.
Credit rating agencies and investor confidence in the
ratings they issue are vital to the efficient operation of
global capital markets. AFP's research has consistently shown
that confidence in rating agencies and their ratings is low
and has continued to diminish over the past few years.
One of the root problems with this market is the U.S.
Securities and Exchange Commission's Nationally Recognized
Statistical Rating Organization (NRSRO) designation, which
has erected an artificial barrier to competition. This
barrier has led to a concentration of market power among the
recognized rating agencies and has removed the incentives for
needed innovation in the global credit ratings market. The
``Credit Rating Agency Duopoly Relief Act'' (H.R. 2990),
would eliminate this regulatory barrier by reforming the
process that the SEC uses to designate Nationally Recognized
Statistical Rating Organizations. H.R. 2990 establishes a new
registration process setting a clear path to NRSRO
designation. In addition, the legislation would provide
prudent oversight to ensure that registered credit rating
agencies continue to issue credible and reliable ratings.
As approved by the House Financial Services Committee, H.R.
2990 will foster competition in the global credit ratings
market. This competition will stimulate innovation and
improve the quality of information available to investors
and, as a result, restore confidence in the credit ratings
market.
Thank you for your support on this important issue.
Sincerely,
Jim Kaitz,
President and CEO.
____
Investment Company Institute,
Washington, DC, July 10, 2006.
Hon. J. Dennis Hastert,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives,
Washington, DC.
Dear Mr. Speaker and Madam Leader: The Investment Company
Institute urges the House to approve H.R. 2990, the ``Credit
Rating Agency Duopoly Relief Act of 2005,'' legislation
introduced by Rep. Michael Fitzpatrick (R-PA) and reported by
the Financial Services Committee. The legislation will
benefit investors and the securities markets by paving the
way for increased competition in the credit ratings industry.
[[Page H5085]]
The SEC's current ``Nationally Recognized Statistical
Rating Organization'' (NRSRO) designation process stifles
competition and presents barriers for new entrants to compete
with currently designated NRSROs. H.R. 2990 establishes a
registration process through which additional rating agencies
become NRSROs, while simultaneously granting the Commission
appropriate authority to ensure the integrity and quality of
credit ratings. The bill also brings much needed sunlight to
credit ratings by requiring disclosure of an NRSRO's rating
criteria, its methodologies and policies, how an NRSRO
addresses conflicts of interest (as well as the conflicts
themselves), and the organizational structure of an NRSRO.
The Institute and its members have a longstanding interest
in credit ratings. Mutual funds employ credit ratings in a
variety of ways--to help make investment decisions, to define
investment strategies, to communicate with their shareholders
about credit risk, and to inform the process for valuing
securities. Most significantly for Institute members is the
role of credit ratings in the operation of money market
mutual funds, which currently have some $2.1 trillon in
assets. Money market funds are governed by Rule 2a-7 under
the Investment Company Act, which limits these funds to
investing in securities either rated in the two highest
short-term rating categories by an NRSRO, or determined by
the fund board to be of comparable quality.
Given the importance of credit ratings to mutual funds and
fund shareholders, we greatly appreciate the work of the
Financial Services Committee on this issue. Accordingly, we
urge Members to support this important reform legislation and
vote aye on final passage. Please do not hesitate to contact
me directly, or Dan Crowley in the Institute's Office of
Government Affairs, (202) 326-5962, if we can provide you
with any additional information.
With very best regards.
Sincerely,
Paul Schott Stevens.
____
The Financial Services Roundtable,
Washington, DC, July 10, 2006.
Hon. Michael G. Fitzpatrick,
House of Representatives,
Washington, DC.
Dear Congressman Fitzpatrick: On behalf of the members of
The Financial Services Roundtable, I urge you to vote for
H.R. 2990, ``The Credit Rating Agency Duopoly Relief Act of
2006.'' It would facilitate the creation of much needed
competition in the credit ratings industry. Additionally, we
believe that increased competition for credit rating agencies
will lower the costs to financial institutions, add integrity
to the credit rating process, and increase earnings for
investors.
Congressional action in the credit rating industry is
necessary. H.R. 2990 will help facilitate structural reform
at the Securities and Exchange Commission (SEC) concerning
the oversight of credit rating agencies with greater
competition premised on a competitive market place
philosophy.
H.R. 2990 should be enacted into law this year,
specifically, for the following reasons:
There is a lack of competition among credit rating
agencies. This is evidenced by the SEC designating only five
companies as Nationally Recognized Statistical Recognized
Organizations (NRSROs)--two of which control approximately
80% of the market. The current designation process is
outdated and inefficient. H.R. 2990 would address this
problem by establishing an unambiguous SEC registration
process with commensurate oversight to ensure integrity in
the ratings process. Moreover, to be an NRSRO, a credit
rating agency must have been in business for at least three
consecutive years and be registered under section 15E of the
Securities Exchange Act of 1934.
This legislation would require increased disclosure of the
ratings process, thus enabling the investor to make better
informed decisions.
Many NRSROs have a conflict of interest concerning the
independence and quality of their ratings. H.R. 2990 resolves
this issue by requiring companies to publicly disclose any
conflicts of interest relating to the issuance of credit
ratings.
The Financial Services Roundtable represents 100 of the
largest integrated financial services companies providing
banking, insurance, and investment products and services to
the American consumer. Member companies participate through
the Chief Executive Officer and other senior executives
nominated by the CEO. Roundtable member companies provide
fuel for America's economic engine, accounting directly for
$50.5 trillion in managed assets, $1.1 trillion in revenue,
and 2.4 million jobs.
In conclusion, we urge all members to vote for final
passage of H.R. 2990, ``the Credit Rating Agency Duopoly
Relief Act of 2006.'' If you or your staff have any questions
or would like to discuss these issues further, please call me
or Irving Daniels at 202-289-4322.
Best regards,
Steve Bartlett,
President and CEO.
____
Association for
Financial Professionals,
July 10, 2006.
Hon. J. Dennis Hastert,
Speaker, House of Representatives,
Washington, DC.
Hon. Nancy Pelosi,
Minority Leader, House of Representatives,
Washington, DC.
Dear Mr. Speaker and Madam Leader: The undersigned
associations, representing a broad array of financial
services firms, support H.R. 2990, the Credit Rating Agency
Duopoly Relief Act, and urge its passage by the House. As
associations representing mutual funds, corporate issuers,
broker/dealers and institutional investors, we all agree that
H.R. 2990 would facilitate much needed competition in the
credit ratings industry.
Credit ratings play a significant role in the securities
markets as well as the economy as a whole. Investors rely on
ratings to measure relative default risks of large and small
companies, as well as government entities. Ratings produced
by Nationally Recognized Statistical Rating Organizations
(NRSROs) are often the determining factor as to whether
companies will expand or local governments can finance major
municipal projects. Furthermore, ratings assigned by NRSROs
play a significant role in determining the permissible
instruments that certain institutional investors can hold.
Currently, competition is severely lacking among credit
rating agencies as the SEC has designated only five companies
as NRSROs--two of which overwhelmingly dominate the market.
The current process for attaining the NRSRO designation fails
to provide a reasonably clear path for potential new
aspirants to follow. H.R. 2990 solves this problem by
establishing an unambiguous SEC registration process with
commensurate oversight to ensure integrity in the ratings
process.
In addition to facilitating competition, the legislation
would provide critically important information, currently
unavailable to investors, about the methodologies NRSROs use
to assign ratings. The bill would not dictate how NRSROs must
operate but instead require disclosure of ratings processes
so investors can better evaluate the quality of ratings.
Additionally, NRSROs would be required to publicly disclose
their policies relating to conflicts of interest and their
organizational structure. Finally, NRSROs would be held
accountable for ratings they issue in contravention to their
disclosed policies.
We thank the Financial Services Committee for its work on
NRSRO reform over the past two Congresses. H.R. 2990
significantly reforms the credit ratings industry by
increasing competition, providing appropriate SEC oversight,
enhancing transparency, and heightening accountability--
reforms that will greatly benefit investors and securities
markets as a whole. Accordingly, we urge Members to support
this much-needed legislation and vote aye on final passage.
Respectfully,
Association for Financial Professionals.
Investment Company Institute.
The Financial Services Roundtable.
Mr. KANJORSKI. Mr. Chairman, I reserve the balance of my time.
Mr. OXLEY. Mr. Chairman, I yield 3 minutes to the gentleman from
Louisiana (Mr. Baker), the chairman of the Capital Markets
Subcommittee.
Mr. BAKER. Mr. Chairman, I thank the gentleman for yielding and wish
to compliment him for his leadership in this matter, as well as that of
Mr. Fitzpatrick who has put many hours into this subject matter and, I
think, has helped to produce legislation worthy of this House's
consideration.
I wish to enter into the Record the statement of administration
policy issued July 12 of this year regarding the passage of H.R. 2990,
the relevant portion being: ``This legislation would enable more credit
rating agencies to qualify nationally under Securities and Exchange
Commission regulation. The bill requires credit rating agencies to
disclose their performance records, methodologies and any conflicts of
interest. The administration looks forward to working with Congress as
we move towards these goals.''
It is clear the administration and the members of the Committee on
Financial Services have found H.R. 2990 not only to be good legislation
but necessary to be adopted; and why is that so?
If one were to ask how could you become a credit rating agency and
get a part of this lucrative business today, the process is unclear. It
is much like the old adage relative to identifying art, ``I know it
when I see it.''
It has been some 30 years since the SEC adopted its current
methodology for establishing this recognition, and yet we do not know
today how one can successfully become an NRSRO, much less once you are
one, who is it that looks over your shoulder, and should they find
inappropriate behavior, how is one unregistered or decommissioned. That
process is also unclear.
What we do know from the record is that very lucrative companies have
engaged in a government-granted business operation, have garnered
significant profits, and have not on all counts met their professional
fiduciary duties.
The bill at hand provides for resources to register, oversee and,
yes,
[[Page H5086]]
even unregister, decommission, provide for someone losing their license
should they be found not meeting appropriate financial and fiduciary
standards. For that reason alone the bill should be adopted.
But let me give one more example of past practice which I found
troublesome. In the past, a rating agency could select a corporation on
which it could engage in its credit analysis and issue an unsolicited
credit rating. Unsolicited means the company didn't ask for it, but in
some cases the rating agency would forward a bill to the corporation.
Now why would the corporation pay that bill? Well, if a corporation, a
public operating company, is going to issue public debt, they have to
have the rating of at least two independent credit rating agencies.
{time} 1400
Since two of the credit rating agencies perform about 99 percent of
the ratings, it would become pretty evident that you would pay the bill
because some time in the future your corporation would need to enter
the public debt markets.
This bill will provide the authority for the SEC to prohibit such
activity in the future, I think a highly appropriate reform. Certainly,
there could be other matters brought to the attention of the House on
the subject of value, but the underlying essential reforms contained in
this bill should be adopted and adopted today.
Statement of Administration Policy, July 12, 2006
h.r. 2990--Credit Rating Agency Duopoly Relief Act of 2006
The Administration supports House passage of H.R. 2990, the
Credit Rating Agency Duopoly Relief Act of 2006. This
legislation would enable more credit rating agencies to
qualify nationally under Securities and Exchange Commission
(SEC) regulations. In addition, the bill requires credit
rating agencies to disclose their performance records,
methodologies, and any conflicts of interest. This bill would
improve competition and transparency in the credit rating
industry, which ultimately would benefit individual
investors. The Administration looks forward to working with
Congress to accomplish these goals.
Mr. KANJORSKI. Mr. Chairman, I think there are good intentions on
both sides of this issue, and unfortunately, I find it to be an
extremely complicated issue and, most of all, not a sexy issue, as you
can see by attendance on the floor.
I doubt whether 5 percent of our viewing audience out there
understands what a nationally recognized statistical rating
organization really is, and probably not a great deal more really care
about it. Except, when you look at what they do and the effect they
have on all of our lives in some very big ways, they are an important
entity and we have to get this right.
And I want to point out that when this entity was constructed by
rule, as Mr. Fitzpatrick pointed out, in 1975, there were originally
three agencies that were granted this nationally recognized statistical
rating organization nomenclature. Since that time, six have been added,
for a total of nine.
Existing today, there are only five because there has been
consolidation in the industry. But what that indicates is that this has
not been a prohibitive area for qualified organizations to gain the
recognition of a nationally recognized statistical rating organization.
I think, and I agree with our friends on the other side, that
competition would be good, and the availability to enter this field
would be much better if we can find a methodology to do that. It does
not necessitate, however, a regimentation regime, and it certainly
doesn't justify the thinking process that the marketplace, through
competition, will cure all ends, and particularly if you look at the
cost of competition and what it means.
Certainly, when we are dealing with hundreds and billions and
trillions of dollars in instruments to be evaluated by these
organizations, whatever the cost of getting that down is infinitesimal
to the importance of getting the quality of the organization correct
and the rating correct to protect investors.
I think that what we have a tendency to do is to think competition in
and of itself is such a wonderful thing that it is going to solve all
purposes. Well, I could suggest to my colleagues on the other side that
if brain surgery is expensive we could entertain the idea that any
doctor can register after 3 years of practice to be a brain surgeon,
and that would qualify him to be a brain surgeon. And in many
instances, in many places it clearly may, although I don't want him
operating on my brain, and I assure you most of the Members of this
House wouldn't want that process used to qualify one's self as a brain
surgeon.
This organizational structure and the methodology used in the rating
agency are analogous to the complications of brain surgery in the
financial field. There aren't many organizations that have the capacity
to do it. Those that do should have methodologies of being tested as to
quality, transparency and methodology, and they should have increased
competition. That we agree upon.
What we disagree upon is the nature of this bill and the regime of
registration is not sufficient to guarantee quality. What may very
easily happen is one or two rogue organizations, after 3 years, may
apply, be designated as a nationally recognized statistical rating
organization, and then do what Mr. Baker referred to, actually bid down
the value by getting business and offering to give good ratings to get
business. They may actually deteriorate the value and the quality of
the ratings. We don't know that for certain. We don't want to suggest
that. We want to make sure that we structure a methodology and means of
designating nationally recognized statistical rating organizations so
we don't have deterioration in quality just to get quantity. What we
wish to have is quantity and quality, and both are equally important.
I urge my colleagues in the House to consider that when they vote on
this measure. I am offering a substitute which we will debate for 20
minutes immediately after the close of this debate.
I think that this is premature. At the very least, the committee and
the Congress should have received legitimate critiques from the
Securities Exchange Commission with all the expertise that they have. I
am sure most of us don't feel fully qualified to view the structure of
these organizations and their ability to perform on the basis of what
we know individually. We are relying on expertise evaluation that is
contained in very limited areas, one of which is certainly an
independent agency of the United States Government, the Securities and
Exchange Commission.
I would urge, at this time, a ``no'' vote on passage of this when we
get to that point in the bill.
Mr. Chairman, I yield back the balance of my time.
Mr. OXLEY. Mr. Chairman, in closing, let me first of all recognize
the gentleman from Pennsylvania, Mr. Fitzpatrick. He has been a real
bulldog on this issue. The committee has worked its will passing this
bill on a voice vote in the committee. His leadership has been
extraordinary. The committee has had numerous hearings. We have had
input from all of the usual sources, and then some, to craft this
legislation.
If somebody were to tell you or anybody in this body that there was
an industry out there where 80 percent of that business was controlled
by two companies, whether it was in the steel industry or the auto
industry, the health care field, I would suggest that particularly my
friends on the other side of the aisle would be particularly upset and
call it restraint of trade and ask for all kinds of investigations and
to try to induce more competition and new entries into that
marketplace. And that is exactly what we have got here. We have got
credit rating agencies that for the last 35 years have basically had a
duopoly on this very lucrative business. And as in the case with any
other kind of business, when you have a duopoly or an oligopoly, you
have lack of competition. You have a situation where you have conflicts
of interest almost guaranteed, and you have a lack of transparency at
the same time. That is what we attack in the Fitzpatrick legislation.
Now, I have been chairman of this committee for 6 years. Even before
I was chairman of this committee this was an issue. The SEC would
always come up before the committee, testify, well, we are working on
it. We are trying to open this up. And yet, a frustrated member of the
committee said, when are you ever going to get around to it?
[[Page H5087]]
This legislation is a wakeup call to the SEC, to the industry that,
at least from our perspective, we are tired of waiting for this to
happen. Everybody likes competition, but nobody likes competitors.
Everybody wants to go to heaven, but nobody wants to die.
It is time that we provide the kind of competitive structure in this
critical area that is long due coming.
There is a reason why, Mr. Chairman, in the Sarbanes-Oxley Act that
we requested this study, because we knew that part of the problem going
forward with Enron and WorldCom and the like was lack of competition
and the abysmal ratings effect that two members of the duopoly created
right before Enron and WorldCom collapsed. Just think about the credit
rating that they gave to Enron and WorldCom just weeks before they
collapsed, and it tells you a lot about the lack of competition, the
lack of transparency and a potential conflict of interest in the
existing status quo.
This bill is anti-status quo. It is far reaching. It is visionary,
and Mike Fitzpatrick's leadership on this cannot be overestimated. And
so I think that every Member should take a look at this. This is part
of the ongoing process to make our markets more competitive, more
transparent, and this bill is a natural follow-up on what this Congress
and what this committee has done over the years to create better
confidence in the markets by investors to provide more competition
therein. This legislation gets the job done, and all Members should
support it.
Mr. Chairman, I yield back the balance of my time.
The CHAIRMAN. All time for general debate has expired.
Pursuant to the rule, the amendment in the nature of a substitute
printed in the bill shall be considered as an original bill for the
purpose of amendment under the 5-minute rule and shall be considered
read.
The text of the amendment in the nature of a substitute is as
follows:
H.R. 2990
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES.
(a) Short Title.--This Act may be cited as the ``Credit
Rating Agency Duopoly Relief Act of 2006''.
(b) References.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a
section or other provision of the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.).
SEC. 2. FINDINGS.
Upon the basis of facts disclosed by the record and report
of the Securities and Exchange Commission made pursuant to
section 702 of the Sarbanes-Oxley Act of 2002 (116 Stat.
797), hearings before the House Committee on Financial
Services during the 108th and 109th Congresses, comment
letters to the concept releases and proposed rules of the
Securities and Exchange Commission, and facts otherwise
disclosed and ascertained, the Congress finds that--
(1) credit rating agencies are of national concern, in
that, among other things--
(A) their ratings, publications, writings, analyses, and
reports are furnished and distributed, and their contracts,
subscription agreements, and other arrangements with clients
are negotiated and performed, by the use of the mails and
means and instrumentalities of interstate commerce;
(B) their ratings, publications, writings, analyses, and
reports customarily relate to the purchase and sale of
securities traded on securities exchanges and in interstate
over-the-counter markets, securities issued by companies
engaged in business in interstate commerce, and securities
issued by national banks and member banks of the Federal
Reserve System;
(C) the foregoing transactions occur in such volume as
substantially to affect interstate commerce, and securities
markets, the national banking system, and the national
economy; and
(D) their regulation serves the compelling interest of
investor protection; and
(2) the Securities and Exchange Commission--
(A) has, through its designation of certain credit rating
agencies as nationally recognized statistical rating
organizations, created an artificial barrier to entry for new
participants; and
(B) will, in its latest proposed rule defining nationally
recognized statistical rating organizations, codify and
strengthen this barrier.
SEC. 3. DEFINITIONS.
Section 3(a) (15 U.S.C. 78c(a)) is amended by adding at the
end the following new paragraphs:
``(60) Credit rating.--The term `credit rating' means an
assessment of the creditworthiness of an obligor as an entity
or with respect to specific securities or money market
instruments.
``(61) Credit rating agency.--The term `credit rating
agency' means any person--
``(A) engaged in the business of issuing credit ratings on
the Internet or through another readily accessible means, for
free or for a reasonable fee;
``(B) employing either a quantitative or qualitative model,
or both, to determine credit ratings; and
``(C) receiving fees from either issuers, investors, or
other market participants, or a combination thereof.
``(62) Nationally recognized statistical rating
organization or nrsro.--The term `nationally recognized
statistical rating organization' means a credit rating agency
that--
``(A) has been in business for at least three consecutive
years; and
``(B) is registered under section 15E.
``(63) Person associated with a nationally recognized
statistical rating organization.--The term `person associated
with a nationally recognized statistical rating organization'
means any partner, officer, director, or branch manager of
such nationally recognized statistical rating organization
(or any person occupying a similar status or performing
similar functions), any person directly or indirectly
controlling, controlled by, or under common control with such
nationally recognized statistical rating organization, or any
employee of such nationally recognized statistical rating
organization.''.
SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS.
(a) Amendment.--The Securities Exchange Act of 1934 is
amended by inserting after section 15D (15 U.S.C. 78o-6) the
following new section:
``SEC. 15E. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS.
``(a) Registration Procedures.--
``(1) Filing of application form.--A credit rating agency
that elects to be treated as a nationally recognized
statistical rating organization for the purposes of Federal
statutes, rules, and regulations may be registered by filing
with the Commission an application for registration in such
form and containing such of the following and any other
information and documents concerning such organization and
any persons associated with such organization as the
Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors:
``(A) any conflicts of interest relating to the issuance of
credit ratings by a nationally recognized statistical rating
organization;
``(B) the procedures and methodologies such nationally
recognized statistical rating organization uses in
determining credit ratings;
``(C) credit ratings performance measurement statistics
over short-term, mid-term, and long-term periods of such
nationally recognized statistical rating organization;
``(D) policies or procedures adopted and implemented by
such nationally recognized statistical rating organization to
prevent the misuse in violation of this title (or the rules
and regulations thereunder) of material, non-public
information; and
``(E) the organizational structure of such nationally
recognized statistical rating organization.
``(2) Review of application.--
``(A) Initial determination.--Within 90 days of the date of
the filing of such application (or within such longer period
as to which the applicant consents) the Commission shall--
``(i) by order grant such registration; or
``(ii) institute proceedings to determine whether
registration should be denied.
``(B) Conduct of proceedings.--Such proceedings shall
include notice of the grounds for denial under consideration
and opportunity for hearing and shall be concluded within 120
days of the date of the filing of the application for
registration. At the conclusion of such proceedings the
Commission, by order, shall grant or deny such registration.
The Commission may extend the time for conclusion of such
proceedings for up to 90 days if it finds good cause for such
extension and publishes its reasons for so finding or for
such longer period as to which the applicant consents.
``(C) Grounds for decision.--The Commission shall grant
such registration if the Commission finds that the
requirements of this section are satisfied. The Commission
shall deny such registration if it does not make such a
finding or if it finds that if the applicant were so
registered, its registration would be subject to suspension
or revocation under subsection (b).
``(3) Public availability of information.--Subject to
section 24, the Commission, by rule, shall require a
nationally recognized statistical rating organization, upon
the granting of registration under this section, to make the
information and documents filed with the Commission in its
application for registration, or in any amendment filed under
subsection (b)(1) or (2), publicly available on the website
or comparable readily accessible means of such nationally
recognized statistical rating organization.
``(b) Update of Registration.--
``(1) Update.--Each nationally recognized statistical
rating organization shall promptly amend its application for
registration under this section if any information or
documents provided therein become materially inaccurate,
except that a nationally recognized statistical rating
organization is not required to amend the information
required to be filed under subsection (a)(1)(C) by a filing
under this paragraph, but shall amend such information in
such organization's annual filing under paragraph (2) of this
subsection.
``(2) Certification.--Not later than 90 days after the end
of each calendar year, each nationally recognized statistical
rating organization shall file with the Commission an
amendment to its registration, in such form as the
Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors--
[[Page H5088]]
``(A) certifying that the information and documents in the
application for registration of such nationally recognized
statistical rating organization continue to be accurate; and
``(B) listing any material changes that occurred to such
information or documents during the previous calendar year.
``(c) Accountability for Ratings Procedures.--
``(1) Authority.--The Commission shall have the authority
under this Act to take action against any nationally
recognized statistical rating organization if such nationally
recognized statistical rating organization issues credit
ratings in contravention of those procedures, criteria, and
methodologies that such nationally recognized statistical
rating organization--
``(A) includes in its application for registration under
this section; or
``(B) makes and disseminates in reports pursuant to section
17(a) or the rules and regulations thereunder.
``(2) Limitation.--The rules and regulations applicable to
nationally recognized statistical rating organizations the
Commission may prescribe pursuant to this Act shall be
narrowly tailored to meet the requirements of this Act
applicable to nationally recognized statistical rating
organizations and shall not purport to regulate the substance
of credit ratings or the procedures and methodologies by
which such nationally recognized statistical rating
organizations determine credit ratings.
``(d) Censure, Denial, or Suspension of Registration;
Notice and Hearing.--The Commission, by order, shall censure,
place limitations on the activities, functions, or operations
of, suspend for a period not exceeding 12 months, or revoke
the registration of any nationally recognized statistical
rating organization if the Commission finds, on the record
after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or revocation is in the
public interest and that such nationally recognized
statistical rating organization, or any person associated
with such nationally recognized statistical rating
organization, whether prior to or subsequent to becoming so
associated--
``(1) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), (E),
(H), or (G) of paragraph (4) of section 15(b), has been
convicted of any offense specified in subparagraph (B) of
such paragraph (4) within 10 years of the commencement of the
proceedings under this subsection, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4);
``(2) has been convicted during the 10-year period
preceding the date of filing of any application for
registration, or at any time thereafter, of--
``(A) any crime that is punishable by imprisonment for 1 or
more years, and that is not described in section 15(b)(4)(B);
or
``(B) a substantially equivalent crime by a foreign court
of competent jurisdiction; or
``(3) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
nationally recognized statistical rating organization.
``(e) Withdrawal From Registration.--A nationally
recognized statistical rating organization registered under
this section may, upon such terms and conditions as the
Commission may establish as necessary in the public interest
or for the protection of investors, withdraw from
registration by filing a written notice of withdrawal with
the Commission. If the Commission finds that any nationally
recognized statistical rating organization is no longer in
existence or has ceased to do business as a credit rating
agency, the Commission, by order, shall cancel the
registration of such nationally recognized statistical rating
organization.
``(f) Representations.--
``(1) Representations of sponsorship by united states or
agency thereof.--It shall be unlawful for any nationally
recognized statistical rating organization registered under
this section to represent or imply in any manner whatsoever
that such nationally recognized statistical rating
organization has been designated, sponsored, recommended, or
approved, or that such nationally recognized statistical
rating organization's abilities or qualifications have in any
respect been passed upon, by the United States or any agency,
any officer, or any employee thereof.
``(2) Representation as nrsro of unregistered credit rating
agencies.--It shall be unlawful for any credit rating agency
to represent or imply in any manner whatsoever that such
credit rating agency has been designated, sponsored,
recommended, or approved, or that such credit rating agency's
abilities or qualifications have in any respect been passed
upon, by the United States or any agency, any officer, or any
employee thereof. It shall be unlawful for any credit rating
agency that is not registered under this section as a
nationally recognized statistical rating organization to
state that such credit rating agency is a nationally
recognized statistical rating organization under this Act.
``(3) Statement of registration under securities exchange
act of 1934 provisions.--No provision of paragraph (1) shall
be construed to prohibit a statement that a nationally
recognized statistical rating organization is a nationally
recognized statistical rating organization under this Act, if
such statement is true in fact and if the effect of such
registration is not misrepresented.
``(g) Prevention of Misuse of Nonpublic Information.--Each
nationally recognized statistical rating organization shall
establish, maintain, and enforce written policies and
procedures reasonably designed, taking into consideration the
nature of such nationally recognized statistical rating
organization's business, to prevent the misuse in violation
of this title, or the rules or regulations thereunder, of
material, nonpublic information by such nationally recognized
statistical rating organization or any person associated with
such nationally recognized statistical rating organization.
The Commission, as it deems necessary or appropriate in the
public interest or for the protection of investors, shall
adopt rules or regulations to require specific policies or
procedures reasonably designed to prevent misuse in violation
of this title (or the rules or regulations thereunder) of
material, nonpublic information.
``(h) Management of Conflicts of Interest.--Each nationally
recognized statistical rating organization shall establish,
maintain, and enforce written policies and procedures
reasonably designed, taking into consideration the nature of
the business of such nationally recognized statistical rating
organization and affiliated persons and affiliated companies
of such nationally recognized statistical rating
organization, to address and manage the conflicts of interest
that can arise from such business. The Commission, as it
deems necessary or appropriate in the public interest or for
the protection of investors, shall adopt rules or regulations
to prohibit, or require the management or disclosure of, any
conflicts of interest relating to the issuance of credit
ratings by a nationally recognized statistical rating
organization including, without limitation, conflicts of
interest relating to--
``(1) the manner in which a nationally recognized
statistical rating organization is compensated by the
obligor, or any affiliate of the obligor, for issuing credit
ratings or providing related services;
``(2) the provision of consulting, advisory, or other
services by a nationally recognized statistical rating
organization, or any person associated with such nationally
recognized statistical rating organization, to the obligor,
or any affiliate of the obligor;
``(3) business relationships, ownership interests, or any
other financial or personal interests between a nationally
recognized statistical rating organization, or any person
associated with such nationally recognized statistical rating
organization, and the obligor, or any affiliate of the
obligor; and
``(4) any affiliation of a nationally recognized
statistical rating organization, or any person associated
with such nationally recognized statistical rating
organization, with any person that underwrites the securities
or money market instruments that are the subject of a credit
rating.
``(i) Prohibited Conduct.--
``(1) Prohibited acts and practices.--The Commission may
adopt rules or regulations to prohibit any act or practice
relating to the issuance of credit ratings by a nationally
recognized statistical rating organization that the
Commission determines to be unfair, coercive, or abusive,
including any act or practice relating to--
``(A) seeking payment for a credit rating that has not been
specifically requested by the obligor--
``(i) from an obligor; or
``(ii) from an affiliate of an obligor, unless--
``(I) the organization is organized under subsection
(a)(1)(E) to receive fees from investors or other market
participants, or a combination thereof; and
``(II) the affiliate is such an investor or participant;
``(B) conditioning or threatening to condition the issuance
of a credit rating on the obligor's, or an affiliate of the
obligor's, purchase of other services or products, including
pre-credit rating assessment products, of the nationally
recognized statistical rating organization or any person
associated with such nationally recognized statistical rating
organization;
``(C) lowering or threatening to lower a credit rating on,
or refusing to rate, securities or money market instruments
issued by an asset pool unless a portion of the assets within
such pool also is rated by the nationally recognized
statistical rating organization;
``(D) modifying or threatening to modify a credit rating or
otherwise departing from its adopted systematic procedures
and methodologies in determining credit ratings, based on
whether the obligor, or an affiliate of the obligor, pays or
will pay for the credit rating or any other services or
products of the nationally recognized statistical rating
organization or any person associated with such nationally
recognized statistical rating organization.
``(2) Rule of construction.--Nothing in paragraph (1), or
in any rules or regulations adopted thereunder, shall be
construed to modify, impair, or supersede the operation of
any of the antitrust laws. For the purposes of the preceding
sentence, the term `antitrust laws' has the meaning given it
in the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Federal Trade
Commission Act (15 U.S.C. 45) to the extent such section 5
applies to unfair methods of competition.
``(j) Designation of Compliance Officer.--Each nationally
recognized statistical rating organization shall designate an
individual responsible for administering the policies and
procedures that are required to be established pursuant to
subsections (g) and (h), and for ensuring compliance with the
securities laws and the rules and regulations thereunder,
including those promulgated by the Commission pursuant to
this section.
``(k) Statements of Financial Condition.--Each nationally
recognized statistical rating organization shall, on a
confidential basis, file with the Commission, at intervals
determined by the Commission, such financial statements,
certified (if required by the rules or regulations of the
Commission) by an independent public accountant, and
information concerning its financial condition as the
Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.
[[Page H5089]]
``(l) Elimination of Commission Designation Process for
NRSRO's.--
``(1) Cessation of designation.--Within 30 days after the
enactment of the Credit Rating Agency Duopoly Relief Act of
2006, the Commission shall cease to designate persons and
companies as nationally recognized statistical rating
organizations, as that term is used under rule 15c3-1 of the
Commission's rules (17 CFR 240.15c3-1).
``(2) Prohibition on reliance on no-action relief.--The no-
action relief that the Commission has granted with respect to
the designation of nationally recognized statistical rating
organizations, as that term is used under rule 15c3-1 of the
Commission's rules (17 CFR 240.15c3-1), shall be void and of
no force or effect.
``(3) Notice to other agencies.--Within 30 days after the
date of enactment of the Credit Rating Agency Duopoly Relief
Act of 2006, the Commission shall give notice to the Federal
agencies which employ the term `nationally recognized
statistical rating organization' (as that term is used under
rule 15c3-1 of the Commission's rules (17 CFR 240.15c3-1)) in
their rules and regulations regarding the actions undertaken
pursuant to this section.
``(4) Review of existing regulations.--Within 180 days
after the date of enactment of the Credit Rating Agency
Duopoly Relief Act of 2006, the Commission shall review its
existing rules and regulations which employ the term
`nationally recognized statistical rating organization' or
`NRSRO' and promulgate new or revised rules and regulations
as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.''.
(b) Conforming Amendments to the 1934 Act.--
(1) Section 15(b)(4)(B)(ii) (15 U.S.C. 78o(b)(4)(B)(ii)) is
amended by inserting ``nationally recognized statistical
rating organization,'' after ``transfer agent,''.
(2) Section 15(b)(4)(C) (15 U.S.C. 78o(b)(4)(C)) is amended
by inserting ``nationally recognized statistical rating
organization,'' after ``transfer agent,''.
(3) Section 21B(a) (15 U.S.C. 78u-2(a)) is amended by
inserting ``15E,'' after ``15C,''.
(c) Other Conforming Amendments.--
(1) Section 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)) is amended by adding at the end the
following new paragraph:
``(53) The term `credit rating agency' has the same meaning
as given in section 3 of the Securities Exchange Act of
1934.''.
(2) Section 9(a)(1) of the Investment Company Act of 1940
(15 U.S.C. 80a-9(a)) is amended by inserting ``credit rating
agency,'' after ``transfer agent,''.
(3) Section 9(a)(2) of the Investment Company Act of 1940
(15 U.S.C. 80a-9(a)) is amended by inserting ``credit rating
agency,'' after ``transfer agent,''.
(4) Section 202(a) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)) is amended by adding at the end the
following new paragraph:
``(28) The term `credit rating agency' has the same meaning
as given in section 3 of the Securities Exchange Act of
1934.''.
(5) Section 203(e)(2)(B) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-3(e)) is amended by inserting ``credit
rating agency,'' after ``transfer agent,''.
(6) Section 203(e)(4) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-3(e)) is amended by inserting ``credit
rating agency,'' after ``transfer agent,''.
(7) Section 1319 of the Housing and Community Development
Act of 1992 (12 U.S.C. 4519) is amended by striking
``effectively'' and all that follows through ``broker-
dealers'' and inserting ``that is a nationally recognized
statistical rating organization, as such term is defined in
section 3(a) of the Securities Exchange Act of 1934''.
(8) Section 439 of the Higher Education Act of 1965 (20
U.S.C. 1087-2) is amended in subsection (r)(15)(A) by
striking ``means any entity recognized as such by the
Securities and Exchange Commission'' and inserting ``means
any nationally recognized statistical rating organization as
that term is defined under the Securities Exchange Act of
1934''.
(9) Section 601(10) of title 23, United States Code, is
amended by striking ``identified by the Securities and
Exchange Commission as a Nationally Recognized Statistical
Rating Organization'' and inserting ``registered with the
Securities and Exchange Commission as a nationally recognized
statistical rating organization as that term is defined under
the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.)''.
SEC. 5. ANNUAL AND OTHER REPORTS.
Section 17(a)(1) (15 U.S.C. 78q(a)(1)) is amended by
inserting ``nationally recognized statistical rating
organization,'' after ``registered transfer agent,''.
SEC. 6. GAO STUDY AND REPORT REGARDING CONSOLIDATION OF
CREDIT RATING AGENCIES.
(a) Study Required.--The Comptroller General of the United
States shall conduct a study--
(1) to identify--
(A) the factors that have led to the consolidation of
credit rating agencies;
(B) the present and future impact of the condition
described in subparagraph (A) on the securities markets, both
domestic and international; and
(C) solutions to any problems identified under subparagraph
(B), including ways to increase competition and the number of
firms capable of providing credit rating services to large
national and multinational business organizations that are
subject to the securities laws;
(2) of the problems, if any, faced by business
organizations that have resulted from limited competition
among credit rating agencies, including--
(A) higher costs;
(B) lower quality of services;
(C) anti-competitive practices;
(D) impairment of independence; and
(E) lack of choice; and
(3) whether and to what extent Federal or State regulations
impede competition among credit rating agencies.
(b) Consultation.--In planning and conducting the study
under this section, the Comptroller General shall consult
with--
(1) the Securities and Exchange Commission;
(2) the Department of Justice; and
(3) any other public or private sector organization that
the Comptroller General considers appropriate.
(c) Report Required.--Not later than 180 days after the
date of enactment of this Act, the Comptroller General shall
submit a report on the results of the study required by this
section to the Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on Financial Services
of the House of Representatives.
SEC. 7. EFFECTIVE DATE.
The amendments made by sections 4 and 5 shall take effect
on January 1, 2008, except as otherwise provided in
paragraphs (1), (3), and (4) of subsection (l) of section 15E
of the Securities Exchange Act of 1934 (as added by such
amendments), and except that the Securities and Exchange
Commission is authorized to prescribe rules and regulations
to carry out such amendments beginning on the date of
enactment of this Act.
The CHAIRMAN. No amendment to the committee amendment is in order
except those printed in House Report 109-550. Each amendment may be
offered only in the order printed in the report, by a Member designated
in the report, shall be considered read, shall be debatable for the
time specified in the report, equally divided and controlled by the
proponent and an opponent, shall not be subject to amendment, and shall
not be subject to a demand for division of the question.
Amendment No. 1 Offered by Mr. Oxley
The CHAIRMAN. It is now in order to consider amendment No. 1 printed
in House Report 109-550.
Mr. OXLEY. Mr. Chairman, I offer an amendment.
The CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:
Amendment No. 1 offered by Mr. Oxley:
Page 3, line 20, insert ``staff'' after ``its''.
Page 4, line 1, strike ``will'' and insert ``would''.
Page 4, line 16, insert ``but does not include a commercial
credit reporting company'' after ``fee''.
Page 5, line 3, strike ``for at least three'' and insert
``as a credit rating agency for at least the past 3''.
Page 6, line 1, strike ``filing'' and insert
``furnishing''.
Page 6, line 5, strike ``filing with'' and insert
``furnishing to''.
Page 6, line 21, insert ``(as applicable)'' after
``periods''.
Page 7, line 9, strike ``filing'' and insert
``furnishing''.
Page 7, line 20, strike ``filing'' and insert
``furnishing''.
Page 8, line 11, strike ``subsection (b)'' and insert
``subsection (d)''.
Page 8, line 17, strike ``filed with'' and insert
``furnished to''.
Page 8, line 18, strike ``filed'' and insert ``furnished''.
Page 8, line 19, strike ``the website or'' and insert ``its
website or through another''.
Page 8, beginning on line 20, strike ``of such nationally
recognized statistical rating organization''.
Page 9, line 4, strike ``filed'' and insert ``furnished''.
Page 9, line 5, strike ``a filing'' and insert ``an
amendment furnished''.
Page 9, line 7, strike ``filing'' and insert ``amendment
furnished''.
Page 9, beginning on line 11, strike ``file with'' and
insert ``furnish to''.
Page 11, line 20, strike ``filing of'' and insert
``furnishing''.
Page 12, line 12, strike ``filing a written notice of
withdrawal with'' and insert ``furnishing a written notice of
withdrawal to''.
Page 18, line 23, strike ``file with'' and insert ``furnish
to''.
Page 19, line 5, insert ``Staff's'' after ``Commission''.
Page 19, line 9, insert ``staff'' after ``Commission''.
Page 19, line 15, insert ``staff'' after ``Commission''.
Page 20, line 6, strike ``180 days'' and insert ``360
days''.
Page 23, strike lines 3 through 6 and insert the following:
SEC. 5. ANNUAL AND OTHER REPORTS.
Section 17(a)(1) (15 U.S.C. 78q(a)(1)) is amended--
(1) by inserting ``nationally recognized statistical rating
organization,'' after ``registered transfer agent,''; and
(2) by adding at the end the following: ``Any report a
nationally recognized statistical rating organization may be
required by Commission rules under this paragraph to make and
disseminate to the Commission shall be deemed furnished to
the Commission.''
The CHAIRMAN. Pursuant to House Resolution 906, the gentleman from
[[Page H5090]]
Ohio (Mr. Oxley) and a Member opposed each will control 5 minutes.
The Chair recognizes the gentleman from Ohio.
Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, I rise to offer an amendment to H.R. 2990, the Credit
Rating Agency Duopoly Relief Act. This amendment makes certain
clarifying and technical changes to Mr. Fitzpatrick's rating agency
reform legislation.
Specifically, the amendment clarifies that there is no private right
of action for rating agencies registered as nationally recognized
statistical rating organizations, or NRSROs, under the Securities
Exchange Act of 1934. Neither is there an express or an implied private
right of action with respect to rating agencies registered as NRSROs
under the Securities Exchange Act. The Securities and Exchange
Commission will retain its enforcement authority over registered rating
agencies.
In addition, the amendment allots to the Securities and Exchange
Commission an additional 6 months, for a total of 1 year, to review
and, if necessary, revise its regulations that use the term ``NRSRO.''
The additional time will allow the SEC and industry participants more
time to properly assess regulations using the NRSRO technology.
This amendment also makes a number of technical amendments,
clarifying definitions, findings and disclosure requirements.
I urge all Members to support this amendment.
Mr. Chairman, I reserve the balance of my time.
Mr. KANJORSKI. Mr. Chairman, I rise to claim the time in opposition.
The Acting CHAIRMAN (Mr. Sweeney). The gentleman is recognized for 5
minutes.
Mr. KANJORSKI. Mr. Chairman, I rise in order to express some thoughts
on the amendment, but I do not intend to oppose the manager's amendment
itself.
The manager's amendment, Mr. Chairman, makes a number of technical
changes in the bill, improving its precision, fixing drafting errors
and extending the implementation time frames. These changes are
acceptable and appropriate.
The manager's amendment also makes a set of larger and more
significant changes; namely, it alters the bill's wording in multiple
places in an attempt to address recently raised concerns about the
possible creation of explicit and implicit private rights of action
under the bill.
Regardless of one's position on whether these changes are needed, and
whether they accomplish their intended purposes, the fact is that these
modifications are coming late in the legislative process and indicates
that the legislation is not well thought out.
{time} 1415
Moreover, this is precisely the type of issue on which getting the
views of the experts at the Securities and Exchange Commission would
have been helpful and invaluable.
That said, Mr. Chairman, I do not intend to object to the manager's
amendment.
Mr. Chairman, I have no further requests for time, and I yield back
the balance of my time.
Mr. OXLEY. Mr. Chairman, I have no further requests for time, and I
yield back the balance of my time.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Ohio (Mr. Oxley).
The amendment was agreed to.
Amendment No. 2 Offered by Mr. Kanjorski
The Acting CHAIRMAN. It is now in order to consider amendment No. 2
printed in House Report 109-550.
Mr. KANJORSKI. Mr. Chairman, I offer a substitute amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:
Amendment No. 2 offered by Mr. Kanjorski:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This act may be cited as the ``Credit Ratings
Accountability and Transparency Act of 2006''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Credit rating agencies play an important role in the
United States capital markets by opining on the
creditworthiness of certain entities, securities, and money
market instruments.
(2) Institutional and retail investors utilize ratings
issued by credit rating agencies in connection with
evaluating credit risk and making investment decisions.
(3) The Securities and Exchange Commission staff, through
the no action letter process, has identified certain credit
rating agencies as Nationally Recognized Statistical Rating
Organizations or NRSROs.
(4) Many Federal and State regulators and legislatures
require the use of NRSRO ratings in regulations and statutes,
including those concerning capital requirements for regulated
financial institutions and portfolio quality standards, to
ensure the utilization of high quality ratings.
(5) The Commission staff's process for identifying NRSROs
should be more transparent and efficient, while maintaining a
high level of quality among NRSROs.
(6) Increased competition among credit rating agencies
seeking to be identified as a NRSRO is desirable, so long as
it is consistent with efforts to ensure high quality ratings.
SEC. 3. RULEMAKING ON NRSRO DEFINITION.
(a) NRSRO Definition.--Within 60 days after the date of
enactment of this Act, the Commission shall finalize its
proposed rulemaking to define a NRSRO, published in the
Federal Register on April 25, 2005 (70 Fed. Reg. 21306 et
seq.).
(b) Publication of Guidelines.--Within 180 days after the
date of enactment of the Act, the Commission shall publish
guidelines concerning the process by which Commission staff
issues no-action letters regarding NRSROs, including
guidelines concerning the staff's determinations in such no-
action letters.
SEC. 4. SENSE OF CONGRESS ON NRSRO VOLUNTARY FRAMEWORK.
(a) Findings.--Congress finds the following:
(1) The existing NRSROs in the United States have entered
into discussions to improve current oversight of their
activities via the adoption of a voluntary framework.
(2) These discussions have sought to apply the self-
regulatory model approved by the International Organization
of Securities Commissions (in this section referred to as
``IOSCO'') of which the Commission is a participant.
(3) The European Commission policy on credit rating
agencies set out in December 2005 used compliance with the
IOSCO code as a central component in ensuring the proper
functioning of rating agencies in the capital markets.
(4) The Chairman of the Commission has testified before the
Financial Services Committee of the House of Representatives
that Commission staff are continuing to review drafts of a
voluntary framework developed by the NRSROs and offer advice
about its provisions and contents.
(5) The adoption of a voluntary framework by NRSROs in the
United States based on the IOSCO self-regulatory model and
paralleling the regulatory regime adopted by the European
Commission would enhance market discipline, advance investor
protection, and facilitate the harmonization of international
standards in the area of credit ratings.
(b) Sense of Congress.--In light of the findings set forth
in subsection (a), it is the sense of the Congress that--
(1) all interested parties involved in establishing a
voluntary framework for self-regulation in the United States,
which is similar to the self-regulatory regime recently
adopted by the European Commission that is based upon the
IOSCO-approved code for overseeing credit rating agencies,
should complete discussions and implement a self-regulatory
model as soon as practicable;
(2) such voluntary framework should be developed in
consultation with the Commission and include adoption of any
and all rules, regulations, policies, and practices deemed
necessary and appropriate for the protection of investors and
in the public interest, including the disclosure of written
policies and procedures of NRSROs in the United States
designed to--
(A) address conflicts of interest relating to--
(i) relationships between NRSROs and rated entities;
(ii) relationships between NRSROs and underwriters; and
(iii) fee structures of the NRSROs;
(B) prevent the misuse of confidential information by a
NRSRO or any person associated with a NRSRO;
(C) ensure compliance with all relevant Federal securities
laws;
(D) ensure that each NRSRO is capable of issuing
independent, predictive, consistent, and reliable ratings;
and
(E) provide performance data, including default rates for
its ratings, for the immediately preceding 4 years, or if in
existence less than 4 years, for the life of the entity.
SEC. 5. ANNUAL TESTIMONY ON IMPROVING THE CREDIT RATING
INDUSTRY.
The Chairperson of the Commission, or a designee of the
Chairperson, shall annually provide oral testimony beginning
in 2007, and for 5 years thereafter, to the Committee on
Financial Services of the House of Representatives regarding
efforts to improve the transparency and accountability of the
credit rating industry, including--
(1) the designation of NRSROs;
(2) the status and the effectiveness of the voluntary
framework described in section 4;
(3) the quality of ratings issued by NRSROs;
[[Page H5091]]
(4) the state of competition among NRSROs; and
(5) the appropriateness, need, and form of any potential
legislation in the area of credit ratings.
SEC. 6. DEFINITIONS.
As used in this Act--
(1) the term ``Commission'' means the Securities and
Exchange Commission; and
(2) the term ``NRSRO'' means a Nationally Recognized
Statistical Rating Organization as determined by the
Commission.
The Acting CHAIRMAN. Pursuant to House Resolution 906, the gentleman
from Pennsylvania (Mr. Kanjorski) and a Member opposed each will
control 10 minutes.
The Chair recognizes the gentleman from Pennsylvania.
Mr. KANJORSKI. Mr. Chairman, I yield myself such time as I may
consume.
While the supporters of H.R. 2990 have tinkered with and somewhat
improved the bill since its introduction, the central provision of the
legislation, in the words of the Consumer Federation of America, is
``fatally flawed.'' I am likewise very concerned that this bill
sacrifices the quality of independent assessments of financial strength
provided by the ``nationally recognized'' credit raters that help our
capital markets remain vibrant.
As a result, I am offering a substitute. Unlike H.R. 2990, which
creates an untested system for establishing nationally recognized
agencies, this alternative expedites and builds upon existing
regulatory, private sector, and international reform efforts.
The voluntary registration regime of H.R. 2990 will increase the
number of nationally recognized agencies without assuring the
credibility and reliability of the issued ratings. We must seek
equilibrium, balancing the desire to increase the quantity of approved
agencies with the need to ensure high-quality ratings. The substitute
addresses this shortcoming.
Moreover, H.R. 2990 ignores ongoing reform efforts. The Securities
and Exchange Commission has a rulemaking pending on these matters.
Currently, approved raters are also developing a voluntary, robust
self-regulatory regime based on the industry code established by the
International Organization of Securities Commissions. Moreover, the
European Commission recently relied on this global code to oversee its
approved rating agencies.
Congress should build upon these domestic, private sector, and
international reform efforts rather than creating chaos by forging a
new regulatory plan. To ensure the advancement of good public policy in
this area, we need to recognize the work of others. We also ought to
provide for the continued legislative oversight of these matters and
minimize unintended consequences.
Specifically, the substitute would require the commission to complete
its definitional rulemaking on what constitutes an approved rating
agency within 60 days of enactment. It would also require the
commission to establish public guidance about the process used to
identify new, nationally recognized agencies within 180 days of
enactment.
The substitute would additionally encourage participating parties to
expedite and complete their discussions over the voluntary framework to
improve market discipline and enhance rating quality. Finally, it would
require annual hearings before the Financial Services Committee to
explore the need for further action.
In short, the substitute establishes a globally consistent market-
based approach. It protects the quality of ratings, enhances
competition, and injects transparency into the process for determining
nationally recognized agencies. It also promotes international
harmonization; ensures that Congress stays focused on these matters;
and gives the commission, which has the foremost expertise on these
issues, a seat at the table in developing any future bill.
In Monday's Bond Buyer, the head of JPMorgan's rating advisory group
opined that efforts related to the rulemaking to defined approved
rating agencies and to establish a voluntary framework consistent with
global standards offers a ``positive solution'' to present concerns. We
should heed his advice to balance quality and quantity concerns in
order to ensure that investors benefit from the best thinking and the
best opinions by passing this substitute.
In sum, Mr. Chairman, the substitute pursues a more prudent course
that accelerates and adds to ongoing domestic, private sector, and
international reform efforts instead of creating an untested system for
establishing nationally recognized agencies. This alternative would
also protect investors by ensuring high-quality ratings.
It is the better approach, and I urge its adoption.
Mr. Chairman, I reserve the balance of my time.
Mr. BAKER. Mr. Chairman, I rise to claim the time in opposition to
the amendment.
The Acting CHAIRMAN. The gentleman from Louisiana is recognized for
10 minutes.
Mr. BAKER. Mr. Chairman, I yield myself such time as I may consume.
I want to make clear that there is a difference of opinion as to the
appropriate method to move forward and establish that the committee's
work product is not frivolously or expeditiously constructed. The
committee has worked many long hours and heard from many experts in the
field as to the most sound recommendations that could be adopted to
effect the changes both sides agree need to be made. In studying the
gentleman's substitute, I think it is important to recognize, however,
the consequences if the House were to adopt this specific
recommendation.
The Kanjorski amendment would establish by sense of Congress that the
SEC should continue to negotiate with the NRSROs to form some sort of
unidentified self-regulatory model. What has been suggested in the
proposal is that offered by the International Organization of
Securities Commissions, the acronym IOSCO. The IOSCO code provides for
a rating agency disclosure regime, but those who have studied it who do
not share its goals point out there is the lack of a meaningful
enforcement provision that is so essential, we believe, that is
contained in H.R. 2990. It is important that if we do identify conduct
that is inappropriate financial behavior, violating one's fiduciary
obligation, that the regulatory structure have a mechanism to take away
the right to practice. H.R. 2990 would provide that certainty.
And, further, Mr. Kanjorski's amendment requires the SEC to testify
annually for a period of 5 years on the SEC's efforts to improve the
transparency of the credit rating agency. Therein, I think, generally
not giving much attention on the question of reporting by an agency
represents the real thrust of the amendment. It is to continue the
dialogue for another 5 years.
Well, we have identified the sufficient problems to bring to the
Congress's concern. There is time for action. The time is now. And
adoption of the Fitzpatrick recommendation, H.R. 2990, is essential and
justified and, I think, essential and justified for us to act today.
Mr. Chairman, I reserve the balance of my time.
Mr. KANJORSKI. Mr. Chairman, I yield 4 minutes to the gentleman from
North Dakota (Mr. Pomeroy).
Mr. POMEROY. Mr. Chairman, I rise both as a Representative of North
Dakota and also as a former State insurance regulator, a solvency
regulator, to speak in favor of the substitute and against the
underlying legislation.
Let me talk about the underlying legislation first. This essentially
``go to a laissez-faire, let the market determine rating agency
credibility'' is a very different departure from the long-established
course we have been on with national registered statistical rating
agencies.
Just a little textbook lesson here: Transparency is generally
regarded as essential to the free function of financial markets. But
transparency depends upon the ability of those participating in the
markets to know the credit worthiness of the players. These statistical
rating agencies make an assessment of the credit worthiness of the
players and put the information out so the market can employ it.
Now what they would do is move away from a guaranteed assessment of
credibility by a national registry on these statistical rating
agencies, and they would let you have this designation for an outfit
that has been in existence 3 years, with no evaluation of the
competence and the credibility underlying the assessments made by
[[Page H5092]]
these credit rating agencies. The result, of course, is predictable:
widely different quality in the credit assessment brought forward by
the rating agencies.
This is very bad business. Very bad business for virtually all
involved. For the investors: Well, you want to make an investment, but
they say the Humpty Dumpty rating agency gives this a triple star,
grade A rating. Well, you don't really know a lot about Humpty Dumpty
rating agency, but it sounds pretty good. They are one of these
statistical rating agencies because they have been around 3 years, and
you make your investment accordingly.
The competence of the Humpty Dumpty rating agency matters, which is
why the present approach to the national registry matters. Deregulating
it is bad for investors and people will lose money.
Now, if it is bad for investors, you might say, well, that must
really be a boon, then, to companies that want to fleece investors by
raising capital on noncredit-worthy enterprises. Not necessarily. I
think this is bad for companies too. And let me tell you about an
experience I encountered as an insurance commissioner.
We had standard rating agencies, and then there was a startup rating
agency. It got a lot of press. Inevitably, they kept coming up with
more alarming rating assessments of the insurance companies, and that
got widely reported in the financial press because it was newsworthy.
It was a bit of the ``sky is falling'' rating agency.
And yet here is how that rating agency made money: If you wanted to
call in and get their rating of an insurance company, you had to pay
them money to get that information. They made money for every call into
their office. So they put out a fancy press release on an insurance
company or on insurance company ratings at large, drum up free media
coverage, get people calling in, and by the calls, make a lot of money.
In the process, I believe they were often very unfair in their ratings
and giving a falsely ominous impression of the solvency status of the
insurance companies.
So this thing, while bad for investors, it may be bad for companies
too because in this proliferation of unregulated rating agencies, you
are going to have some rating agencies that just love to tell a
terrible story, irrespective of whether it is fair or whether it is
not.
So really disconnecting from the Securities and Exchange Commission
and to have the majority in the House run this deregulation of rating
agencies, ultimately so critical to the function of our financial
markets, is, frankly, just a little nutty, not well founded, not well
thought out; and it is an idea that ought to be cured by the passage of
the substitute, which basically brings it back in line with the quality
assurance of nationally registered statistical rating agencies.
I thank the gentleman for yielding.
Mr. BAKER. Mr. Chairman, I yield 3 minutes at this time to the
primary sponsor of the legislation, Mr. Fitzpatrick.
Mr. FITZPATRICK of Pennsylvania. Mr. Chairman, as the bill's sponsor,
I rise in opposition to the substitute amendment offered.
It is vital that Congress bring competition, transparency, and
accountability to the credit rating industry. And H.R. 2990 would
accomplish just that. However, Congressman Kanjorski's substitute
amendment retains the anticompetitive status quo and provides no
transparency and no accountability.
The subcommittee amendment offered today has three key components: It
requires the SEC to complete its definitional rulemaking; it encourages
completion of the voluntarily framework; and it calls for hearings on
rating agencies before the Committee on Financial Services.
{time} 1430
First, the SEC has never defined the term ``NRSRO,'' and it has been
over 30 years. I doubt that the SEC's illustrious track record on this
issue deserves this much faith. H.R. 2990 replaces this vague and
undefined system with a registration system and is consistent with the
free market principles of our Federal securities laws. The substitute
amendment makes no change to this ambiguous and anticompetitive system.
Second, a voluntary agreement offers no real accountability. The SEC
cannot enforce violations of the voluntary agreement by rating agencies
that sign it, let alone those agencies that are not signatories. H.R.
2990 holds credit rating firms accountable and requires adherence to
the credit rating firm's stated methodologies.
Third, there already have been numerous hearings in the Financial
Services Committee in the 108th and 109th Congresses. No less than
five, dozens of witnesses have been called to testify before the
committee, and close to 1,000 pages of recorded and transcribed
testimony. The Financial Services Committee has been diligent in
holding hearings on this important issue.
Mr. Chairman, in the wake of a seminal failure by S&P and Moody's in
the Enron and WorldCom scandals, we must ensure integrity in the credit
ratings process. This bill would inject greater competition,
transparency and accountability in the credit rating industry. As a
result, prices and anticompetitive practices will be reduced, credit
ratings quality will improve, and firms will innovate.
Mr. Chairman, I strongly urge a ``no'' vote on the substitute
amendment.
Mr. KANJORSKI. Mr. Chairman, may I inquire as to how many speakers
are on the other side.
Mr. BAKER. Mr. Chairman, how much time is remaining?
The Acting CHAIRMAN. The gentleman from Pennsylvania (Mr. Kanjorski)
has 1\1/2\ minutes remaining. The gentleman from Louisiana (Mr. Baker)
has 5\1/2\ minutes remaining.
Mr. BAKER. Mr. Chairman, we will have two.
Mr. KANJORSKI. Then I will reserve my time.
Mr. BAKER. Mr. Chairman, I yield 3 minutes to the gentleman from
North Carolina (Mr. McHenry), a valuable member of the Financial
Services Committee.
Mr. McHENRY. Mr. Chairman, I first want to begin by thanking my
colleague from Pennsylvania for offering this substitute. I think it is
important that on large issues coming before Congress that both sides
are heard.
We dealt with this issue in committee. This bill, sponsored by my
colleague from Pennsylvania (Mr. Fitzpatrick) was voted out of
committee by a voice vote, certainly not a very controversial piece of
legislation. Mr. Kanjorski's amendment, offered in the nature of a
substitute as well in the committee, which is substantially the same as
he is offering here today, was voted down. So we have already dealt
with this and wrestled with this issue in committee.
I also want to talk about the substance of his amendment today. What
it does is retain the status quo. In essence, the SEC has endorsed an
anticompetitive model for credit rating agencies. There are two
dominating credit rating agencies that control 80 percent of the
marketplace, and this is because of SEC regulation.
What Mr. Fitzpatrick's bill does is enable the private sector to come
forward and actually increase the number of credit rating agencies in
the marketplace so investors can decide. So it is a free market piece
of legislation.
What Mr. Kanjorski's bill does is retain the status quo that is
anticompetitive, and beyond that, it has no accountability. It is a
voluntary regime which Mr. Kanjorski endorses, without any real
mechanism of enforcement, and beyond that, it codifies this chicken and
egg problem within the credit rating agencies today.
You have to be a nationally recognized credit rating rated agency in
order to be a national recognized credit agency. Now here is the deal.
You can operate all you want and call yourself a nationally recognized
credit rating rated agency, but unless you are recognized by the SEC
you cannot operate.
So, therefore, you are codifying in law a very complicated procedure
that the SEC has put in place. It says you cannot actually function in
the marketplace without the SEC endorsing it, but in order to get the
SEC to endorse you, you have to be in the marketplace and operating.
So, in essence, we have a very complicated piece of procedure that the
SEC's put in place that is anticompetitive.
Beyond that, Mr. Speaker, in conclusion, I would say that what the
gentleman from Pennsylvania is offering in the nature of a substitute
is a question of who, not what. This is truly
[[Page H5093]]
about politics today. I think it is a question of who is sponsoring the
legislation, who is moving the legislation, not what the underlying
legislation does.
I would ask my colleague to vote with us on final passage, to move
forward past this substitute and let us do the business of the House
and the business of the people and endorse a free market solution.
Mr. KANJORSKI. Mr. Chairman, I think I have the right to close, so I
will reserve my time.
The Acting CHAIRMAN. The gentleman from Louisiana (Mr. Baker) has the
right to close.
Mr. KANJORSKI. Mr. Chairman, I yield myself the balance of the time.
Mr. Chairman, I listened to the last speaker with somewhat dismay. He
tended to quote a lot of votes. Yes, there was a vote that passed this
on from the committee to the floor, and after the preceding vote that
was held by the committee on the substitute he failed to inform the
House that there were 35 against the substitute, 31 in favor of the
substitute. This did not come out of the committee without contention.
It came out on the voice vote because we saw the count was 35-31. We
did not call for a vote.
Secondly, the gentleman charges my suggestion of the substitute as a
definition to define and maintain the status quo. Either he has not
looked at the substitute or we define the status quo in different
proportions because this substitute does several things.
First and foremost, it would require the Securities and Exchange
Commission to complete its definitional rulemaking of what constitutes
an approved rating agency within 60 days of enactment. That does not
give them unlimited time to continue to pursue. Within 60 days they
have to have the definition.
The second position, it would require the commission to establish
public guidelines about the process used to identify new nationally
recognized agencies within 180 days of enactment, within 6 months. That
is hardly the status quo.
Then, finally, we would encourage continuation and participation of
the parties to expedite and complete a voluntary framework to improve
the discipline and enhance rating quality.
This substitute accomplishes several things, moves the process along
but does not create an entire new entity and process which is
contradictory to international agreements and other conditions held
throughout the world.
I urge the adoption of the substitute.
Mr. BAKER. Mr. Chairman, I yield myself the remaining time.
Mr. Chairman, it is appropriate, I think, to perhaps review the
subject matter at hand from a little higher altitude than the debate
has taken us.
We have an obligation in this House to ensure that hardworking
American families who invest their money in the markets can do so in
the most safe and sound manner possible. What we now know about the
function of the credit rating agencies over the past decade is their
performance has been less than what we should expect. In fact, days
before corporate failures, they continued to report the highest
investment grade analysis on many troubled companies. We know that we
must act to ensure that pension fund investors, managers of perhaps
rather large public schoolteacher or public employee investment funds
have the best tools available to ensure that innocent third parties are
not harmed by abhorrent actors in the capital markets.
I can assure my colleagues that this proposal moves us in an improved
direction. Certainly, any legislation can be improved upon, but the
bill we have before us is fully warranted, fully justified, and it is
now timely for this House to act.
I commend Chairman Oxley for his continued leadership in trying to
bring out fiscal accountability in the capital markets. I commend Mr.
Fitzpatrick for his hard work on this measure. But I ask this House to
turn down the Kanjorski substitute and adopt H.R. 2990 as recommended
by the Financial Services Committee.
Mr. Chairman, I yield back my time.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Pennsylvania (Mr. Kanjorski).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Recorded Vote
Mr. KANJORSKI. Mr. Chairman, I demand a recorded vote.
A recorded vote was ordered.
The vote was taken by electronic device, and there were--ayes 198,
noes 222, not voting 12, as follows:
[Roll No. 367]
AYES--198
Abercrombie
Ackerman
Allen
Andrews
Baca
Baird
Baldwin
Barrow
Bean
Becerra
Berkley
Berman
Berry
Bishop (GA)
Bishop (NY)
Blumenauer
Boren
Boswell
Boucher
Boyd
Brady (PA)
Brown (OH)
Brown, Corrine
Butterfield
Capps
Capuano
Cardin
Cardoza
Carnahan
Carson
Case
Chandler
Clay
Cleaver
Clyburn
Conyers
Cooper
Costa
Costello
Cramer
Crowley
Cuellar
Cummings
Davis (AL)
Davis (CA)
Davis (FL)
Davis (IL)
Davis (TN)
DeFazio
DeGette
Delahunt
DeLauro
Dicks
Dingell
Doggett
Doyle
Edwards
Emanuel
Engel
Eshoo
Etheridge
Farr
Fattah
Filner
Ford
Frank (MA)
Gonzalez
Gordon
Green, Al
Green, Gene
Grijalva
Gutierrez
Harman
Hastings (FL)
Herseth
Higgins
Hinchey
Hinojosa
Holden
Holt
Honda
Hooley
Hoyer
Inslee
Israel
Jackson (IL)
Jackson-Lee (TX)
Jefferson
Johnson, E. B.
Jones (OH)
Kanjorski
Kaptur
Kennedy (RI)
Kildee
Kilpatrick (MI)
Kind
Kucinich
Langevin
Lantos
Larsen (WA)
Larson (CT)
Lee
Levin
Lewis (GA)
Lipinski
Lofgren, Zoe
Lowey
Lynch
Maloney
Markey
Marshall
Matheson
Matsui
McCarthy
McCollum (MN)
McDermott
McGovern
McIntyre
McKinney
Meehan
Meek (FL)
Meeks (NY)
Melancon
Michaud
Millender-McDonald
Miller (NC)
Miller, George
Mollohan
Moore (KS)
Moore (WI)
Moran (VA)
Murtha
Nadler
Napolitano
Neal (MA)
Oberstar
Obey
Olver
Ortiz
Owens
Pallone
Pascrell
Pastor
Payne
Pelosi
Peterson (MN)
Pomeroy
Price (NC)
Rahall
Rangel
Reyes
Ross
Rothman
Roybal-Allard
Ruppersberger
Rush
Ryan (OH)
Sabo
Salazar
Sanchez, Linda T.
Sanchez, Loretta
Sanders
Schakowsky
Schiff
Schwartz (PA)
Scott (GA)
Scott (VA)
Serrano
Sherman
Skelton
Smith (WA)
Snyder
Solis
Spratt
Stark
Strickland
Stupak
Tanner
Tauscher
Taylor (MS)
Thompson (CA)
Thompson (MS)
Tierney
Towns
Udall (CO)
Udall (NM)
Van Hollen
Velazquez
Visclosky
Wasserman Schultz
Waters
Watt
Waxman
Weiner
Wexler
Woolsey
Wu
Wynn
NOES--222
Aderholt
Akin
Alexander
Bachus
Baker
Barrett (SC)
Bartlett (MD)
Barton (TX)
Bass
Beauprez
Biggert
Bilbray
Bilirakis
Bishop (UT)
Blackburn
Blunt
Boehlert
Boehner
Bonilla
Bonner
Bono
Boozman
Boustany
Bradley (NH)
Brady (TX)
Brown (SC)
Brown-Waite, Ginny
Burgess
Burton (IN)
Buyer
Calvert
Camp (MI)
Campbell (CA)
Cannon
Cantor
Capito
Carter
Castle
Chabot
Chocola
Coble
Cole (OK)
Conaway
Crenshaw
Cubin
Davis (KY)
Davis, Tom
Deal (GA)
Dent
Diaz-Balart, L.
Diaz-Balart, M.
Doolittle
Drake
Dreier
Duncan
Ehlers
Emerson
English (PA)
Everett
Feeney
Ferguson
Fitzpatrick (PA)
Flake
Foley
Forbes
Fortenberry
Fossella
Foxx
Franks (AZ)
Frelinghuysen
Gallegly
Garrett (NJ)
Gerlach
Gibbons
Gilchrest
Gillmor
Gingrey
Gohmert
Goode
Goodlatte
Granger
Graves
Green (WI)
Gutknecht
Hall
Harris
Hart
Hastings (WA)
Hayes
Hayworth
Hefley
Hensarling
Herger
Hobson
Hoekstra
Hostettler
Hulshof
Hunter
Hyde
Inglis (SC)
Issa
Istook
Jenkins
Jindal
Johnson (CT)
Johnson (IL)
Johnson, Sam
Jones (NC)
Keller
Kelly
Kennedy (MN)
King (IA)
King (NY)
Kingston
Kirk
Kline
Knollenberg
Kolbe
Kuhl (NY)
LaHood
Latham
LaTourette
Leach
Lewis (CA)
Lewis (KY)
Linder
LoBiondo
Lucas
Lungren, Daniel E.
Mack
Manzullo
Marchant
McCaul (TX)
McCotter
McCrery
McHenry
McHugh
McKeon
McMorris
Mica
Miller (FL)
Miller (MI)
Miller, Gary
Moran (KS)
Murphy
Musgrave
Myrick
Neugebauer
Ney
Norwood
Nunes
Nussle
Osborne
Otter
Oxley
Paul
Pearce
Pence
Petri
Pickering
Pitts
Poe
Pombo
Porter
Price (GA)
Pryce (OH)
Putnam
Radanovich
Ramstad
Regula
Rehberg
Reichert
Renzi
Reynolds
Rogers (AL)
Rogers (KY)
Rogers (MI)
Rohrabacher
Royce
Ryan (WI)
Ryun (KS)
Saxton
Schmidt
Schwarz (MI)
Sensenbrenner
Shadegg
Shaw
Shays
Sherwood
Shimkus
[[Page H5094]]
Shuster
Simmons
Simpson
Smith (NJ)
Smith (TX)
Sodrel
Souder
Stearns
Sullivan
Sweeney
Tancredo
Taylor (NC)
Terry
Thomas
Thornberry
Tiberi
Turner
Upton
Walden (OR)
Walsh
Wamp
Weldon (FL)
Weldon (PA)
Weller
Westmoreland
Whitfield
Wicker
Wilson (NM)
Wilson (SC)
Wolf
Young (AK)
Young (FL)
NOT VOTING--12
Culberson
Davis, Jo Ann
Evans
McNulty
Northup
Peterson (PA)
Platts
Ros-Lehtinen
Sessions
Slaughter
Tiahrt
Watson
{time} 1503
Mr. CARTER and Mr. HEFLEY changed their vote from ``aye'' to ``no.''
So the amendment was rejected.
The result of the vote was announced as above recorded.
The Acting CHAIRMAN. The question is on the committee amendment in
the nature of a substitute, as amended.
The committee amendment in the nature of a substitute, as amended,
was agreed to.
The Acting CHAIRMAN. Under the rule, the Committee rises.
Accordingly, the Committee rose; and the Speaker pro tempore (Mr.
McHugh) having assumed the chair, Mr. Sweeney, Acting Chairman of the
Committee of the Whole House on the State of the Union, reported that
the Committee, having had under consideration the bill (H.R. 2990) to
improve ratings quality by fostering competition, transparency, and
accountability in the credit rating agency industry, pursuant to House
Resolution 906, he reported the bill back to the House with an
amendment adopted by the Committee of the Whole.
The SPEAKER pro tempore. Under the rule, the previous question is
ordered.
Is a separate vote demanded on the amendment to the committee
amendment in the nature of a substitute adopted by the Committee of the
Whole? If not, the question is on the committee amendment in the nature
of a substitute.
The committee amendment in the nature of a substitute was agreed to.
The SPEAKER pro tempore. The question is on the engrossment and third
reading of the bill.
The bill was ordered to be engrossed and read a third time, and was
read the third time.
The SPEAKER pro tempore. The question is on the passage of the bill.
The question was taken; and the Speaker pro tempore announced that
the ayes appeared to have it.
Recorded Vote
Mr. OXLEY. Mr. Speaker, I demand a recorded vote.
A recorded vote was ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, this 15-
minute vote on passage of H.R. 2990 will be followed by a 5-minute vote
on the motion to suspend the rules on H.R. 5646.
The vote was taken by electronic device, and there were--ayes 255,
noes 166, not voting 11, as follows:
[Roll No. 368]
AYES--255
Aderholt
Akin
Alexander
Allen
Andrews
Bachus
Baker
Barrett (SC)
Bartlett (MD)
Barton (TX)
Bass
Bean
Beauprez
Biggert
Bilbray
Bilirakis
Bishop (UT)
Blackburn
Blunt
Boehlert
Boehner
Bonilla
Bonner
Bono
Boozman
Boren
Boustany
Boyd
Bradley (NH)
Brady (TX)
Brown (SC)
Brown-Waite, Ginny
Burgess
Burton (IN)
Butterfield
Buyer
Calvert
Camp (MI)
Campbell (CA)
Cannon
Cantor
Capito
Cardoza
Carter
Case
Castle
Chabot
Chocola
Coble
Cole (OK)
Conaway
Costa
Cramer
Crenshaw
Cubin
Cuellar
Culberson
Davis (KY)
Davis, Tom
Deal (GA)
Dent
Diaz-Balart, L.
Diaz-Balart, M.
Dicks
Doolittle
Drake
Dreier
Duncan
Edwards
Ehlers
Emerson
English (PA)
Everett
Feeney
Ferguson
Fitzpatrick (PA)
Flake
Foley
Forbes
Ford
Fortenberry
Fossella
Foxx
Franks (AZ)
Frelinghuysen
Gallegly
Garrett (NJ)
Gerlach
Gibbons
Gilchrest
Gillmor
Gingrey
Gohmert
Goode
Goodlatte
Gordon
Granger
Graves
Green (WI)
Green, Gene
Gutknecht
Hall
Harris
Hart
Hastings (WA)
Hayes
Hayworth
Hefley
Hensarling
Herger
Hinojosa
Hobson
Hoekstra
Hostettler
Hulshof
Hunter
Hyde
Inglis (SC)
Inslee
Issa
Istook
Jenkins
Jindal
Johnson (CT)
Johnson (IL)
Johnson, Sam
Jones (NC)
Keller
Kelly
Kennedy (MN)
King (IA)
King (NY)
Kingston
Kirk
Kline
Knollenberg
Kolbe
Kuhl (NY)
LaHood
Latham
LaTourette
Leach
Lewis (CA)
Lewis (KY)
Linder
LoBiondo
Lucas
Lungren, Daniel E.
Mack
Manzullo
Marchant
Matheson
McCaul (TX)
McCotter
McCrery
McHenry
McHugh
McIntyre
McKeon
McMorris
Mica
Miller (FL)
Miller (MI)
Miller, Gary
Moore (KS)
Moran (KS)
Murphy
Musgrave
Myrick
Neugebauer
Ney
Norwood
Nunes
Nussle
Ortiz
Osborne
Otter
Oxley
Paul
Pearce
Pence
Peterson (MN)
Peterson (PA)
Petri
Pickering
Pitts
Poe
Pombo
Porter
Price (GA)
Pryce (OH)
Putnam
Radanovich
Ramstad
Regula
Rehberg
Reichert
Renzi
Reyes
Reynolds
Rogers (AL)
Rogers (KY)
Rogers (MI)
Rohrabacher
Royce
Ruppersberger
Ryan (OH)
Ryan (WI)
Ryun (KS)
Salazar
Saxton
Schmidt
Schwarz (MI)
Sensenbrenner
Shadegg
Shaw
Shays
Sherwood
Shimkus
Shuster
Simmons
Simpson
Smith (NJ)
Smith (TX)
Snyder
Sodrel
Souder
Stearns
Sullivan
Sweeney
Tancredo
Tanner
Tauscher
Taylor (NC)
Terry
Thomas
Thornberry
Tiberi
Turner
Upton
Walden (OR)
Walsh
Wamp
Weldon (FL)
Weldon (PA)
Weller
Westmoreland
Wexler
Whitfield
Wicker
Wilson (NM)
Wilson (SC)
Wolf
Young (AK)
Young (FL)
NOES--166
Abercrombie
Ackerman
Baca
Baird
Baldwin
Barrow
Becerra
Berkley
Berman
Berry
Bishop (GA)
Bishop (NY)
Blumenauer
Boswell
Boucher
Brady (PA)
Brown (OH)
Brown, Corrine
Capps
Capuano
Cardin
Carnahan
Carson
Chandler
Clay
Cleaver
Clyburn
Conyers
Cooper
Costello
Crowley
Cummings
Davis (AL)
Davis (CA)
Davis (FL)
Davis (IL)
Davis (TN)
DeFazio
DeGette
Delahunt
DeLauro
Dingell
Doggett
Doyle
Emanuel
Engel
Eshoo
Etheridge
Farr
Filner
Frank (MA)
Gonzalez
Green, Al
Grijalva
Gutierrez
Harman
Hastings (FL)
Herseth
Higgins
Hinchey
Holden
Holt
Honda
Hooley
Hoyer
Israel
Jackson (IL)
Jackson-Lee (TX)
Jefferson
Johnson, E. B.
Jones (OH)
Kanjorski
Kaptur
Kennedy (RI)
Kildee
Kilpatrick (MI)
Kind
Kucinich
Langevin
Lantos
Larsen (WA)
Larson (CT)
Lee
Levin
Lewis (GA)
Lipinski
Lofgren, Zoe
Lowey
Lynch
Maloney
Markey
Marshall
Matsui
McCarthy
McCollum (MN)
McDermott
McGovern
McKinney
Meehan
Meek (FL)
Meeks (NY)
Melancon
Michaud
Millender-McDonald
Miller (NC)
Miller, George
Mollohan
Moore (WI)
Moran (VA)
Murtha
Nadler
Napolitano
Neal (MA)
Oberstar
Obey
Olver
Owens
Pallone
Pascrell
Pastor
Payne
Pelosi
Pomeroy
Price (NC)
Rahall
Rangel
Ross
Rothman
Roybal-Allard
Rush
Sabo
Sanchez, Linda T.
Sanchez, Loretta
Sanders
Schakowsky
Schiff
Schwartz (PA)
Scott (GA)
Scott (VA)
Serrano
Sherman
Skelton
Smith (WA)
Solis
Spratt
Stark
Strickland
Stupak
Taylor (MS)
Thompson (CA)
Thompson (MS)
Tierney
Towns
Udall (CO)
Udall (NM)
Van Hollen
Velazquez
Visclosky
Wasserman Schultz
Waters
Watt
Waxman
Weiner
Woolsey
Wu
Wynn
NOT VOTING--11
Davis, Jo Ann
Evans
Fattah
McNulty
Northup
Platts
Ros-Lehtinen
Sessions
Slaughter
Tiahrt
Watson
Announcement by the Speaker Pro Tempore
The SPEAKER pro tempore (during the vote). There are 2 minutes
remaining in this vote.
{time} 1521
Mr. COSTELLO, Ms. CORRINE BROWN of Florida, and Mr. MEEKS of New York
changed their vote from ``aye'' to ``no.''
So the bill was passed.
The result of the vote was announced as above recorded.
A motion to reconsider was laid on the table.
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