Press Release

Hensarling Says Draft Rating Agency Bill Falls Short

No nation, can sue its way into economic recovery and financial stability

WASHINGTON, DC —  Congressman Jeb Hensarling, the top Republican on the House Financial Services Subcommittee on Financial Institutions and Consumer Credit and the lone Member of Congress on the Congressional Oversight Panel (COP) for the Troubled Asset Relief Program (TARP) delivered the following opening statement at today’s hearing of the House Financial Services Committee:

“We know there are a number of causes to our nation’s economic turmoil.  Most have their genesis in flawed public policy – particularly with the affordable housing goals of Fannie Mae and Freddie Mac.

“To state the obvious, the rating agencies, like many others, got it wrong going into last year’s credit freeze.  That does not necessarily make them duplicitous; it doesn’t necessarily make them incompetent.  It just makes the wrong - very, very wrong.

“It is also a painful and expensive reminder that there is no substitute for some modicum of investor due diligence and personal responsibility.

“Now, there is a sincere bipartisan desire for credit rating agency reform in this committee. Unfortunately, I believe the draft that is before us now falls short. There are a number of good provisions in Chairman Kanjorski draft, including essentially removing the NRSRO designation from current statute and regulation.

“Unfortunately, the bill also includes provisions that will create new liability exposure, including joint liability for the rating agencies. I feel that these sections will actually increase barriers to the rating market and make it more difficult to have competition. The increase in lawsuits will become, I believe, an insurmountable barrier to competition.

“The joint liability provision especially troubles me. To make every rating agency potentially liable for the ratings of other agencies, I don’t see the parallel anywhere else in the private sector. I heard someone say, “That’s a little like making Ford liable for a defective car manufactured by GM and not giving Ford a chance to defend itself.

“No nation, can sue its way into economic recovery and financial stability. Increasing liability does not get at the root of the problem, which is the de facto government stamp of approval behind the rating agencies work product.

“People assume wrongly that the government stamp of approval meant accurate ratings. Congress took a good step with the Credit Rating Agency Reform Act, but it was too little, too late. Again, there is a vitally important lesson we have all learned about implied government backing. I want to compliment the Chairman and the Ranking Member for having a bill before us that would essentially terminate the NRSRO designation, but unless we eliminate all barriers to entry I’m fearful it is all for naught.”

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