Moody’s and Standard & Poor’s start 2006 facing charges of running a duopoly – and some tough questioning. Their only hope? To come up with a solution before the US government imposes one.
Senior executives at Moody’s and Standard & Poor’s may not have a happy new year. They are under increasing pressure from the US Congress about their perceived duopoly in providing credit ratings as well as other business practices such as unsolicited ratings.
Lobbying a must
The Credit Rating Agency Duopoly Relief Act of 2005 has already begun the long passage to the statute book. Although it may never reach its final destination, the rating agencies cannot afford to take that risk: they must spend this year lobbying against undue government interference in the business.
Special hearings
Executives may also find their time taken up testifying to committees and special hearings, the first of which was held by the House Financial Services Committee on November 29.
The Banker has mixed views about the situation. We are against over-regulation and further government involvement in business.
On the other hand, there is concern in the industry that the increasing reliance on ratings (by investors in securities and by banks under Basel II) is concentrating more and more power into the rating agencies’ hands. In the US, Moody’s and S&P have an 80% market share so it is hardly surprising that they are attracting political attention.
The solution for Moody’s and S&P is to come up with a business model that satisfies government demands in advance of legislation.
They need to move fast.
