Washington, D.C. – Michael Bennet, U.S. Senator for Colorado, offered the following statement regarding legislation announced today by Senate Banking Committee Chairman Chris Dodd (D-CT) that would improve regulations over financial institutions that were largely credited with abusing current regulations that nearly led to a collapse of the U.S. and global economy.
“Families and small businesses across Colorado are still reeling from the effects of the financial collapse that occurred a year and a half ago. Unfortunately, many of the same factors that contributed to the collapse still exist today. That’s why it is so important that we move aggressively to fundamentally reform the way Wall Street does business.
“Senator Dodd’s proposal makes progress in protecting American taxpayers from having to prop up banks that are ‘too big to fail.’ By creating a process for closing down failing financial companies, the big banks won’t be able to engage in dangerous risk taking and still expect a taxpayer-funded handout.
“However, the types of mortgages and financial products that nearly wrecked our economy have convinced me that an independent consumer advocate is critical to protecting the American people and strengthening our economy. If we don’t use this opportunity to strengthen our commitment to consumer protection, we haven’t learned the true lessons of the recent financial crisis.
“I’m pleased that the bill also includes language that I proposed to punish credit rating agencies that allow their compensation structure to taint their evaluations of a particular company. As this process moves forward, I’m going to continue to look for ways to minimize or eliminate conflicts of interest embedded in the ratings system.”
Under the current law, credit rating agencies are paid by the same companies that they evaluate, raising significant conflict of interest issues. At the same time, the Securities and Exchange Commission (“SEC”) designates official credit rating agencies that are referenced in various federal statutes and regulations, which further increases our financial system’s reliance on the accuracy of such ratings. Senator Bennet’s language would give the SEC the power to revoke or suspend this official status if it finds that the agency allowed its compensation structure to influence a particular rating. This language will ultimately reduce conflicts of interest and increase the accuracy of such ratings.
Bennet submitted an op-ed to the Denver Post in February on the objectives he hoped the legislation would meet.