Connecticut Attorney General's Office

Press Release

Attorney General Praises Fed For Granting Request To Open Bailout Program To More Rating Agencies, Urges Further Expansion

May 19, 2009

Attorney General Richard Blumenthal today praised the Federal Reserve for a "positive first step" toward amending a bailout program that would have unfairly steered up to $400 million to the Big Three credit rating agencies who enabled the economic meltdown by overrating risky securities.

Until now, only the Big Three credit rating agencies -- Moody's Investors Service, Fitch Ratings and Standard & Poor's -- had the exclusive right to rate securities eligible for the Federal Reserve's $1 trillion Term Asset-Backed Securities Loan Facility (TALF), while cutting out smaller competitors who can also do the work.

In recent letters to Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner, Blumenthal urged that TALF be expanded to enable competition in the rating agencies industry by allowing additional credit rating agencies to rate eligible collateral.

Today, the Federal Reserve Board announced that it is expanding TALF to include commercial mortgage-backed securities (CMBS) as eligible for TALF and that two more rating agencies -- DBRS and Realpoint -- will be eligible to rate CMBS under TALF.

"The Federal Reserve has taken a positive first step to respond to our request to provide critical competition and shatter the old boy's club of credit rating agencies," Blumenthal said. "At least two smaller credit rating agencies, among six struggling to compete against the Big Three, are now eligible to rate certain securities under a vital federal bailout program.

"Equally important, the Fed has indicated a willingness to consider addition additional credit ratings agencies whose ratings will be accepted to rate CMBS and other eligible asset-backed securities under the TALF.

"As I have repeatedly urged -- in letters to the Federal Reserve and U.S. Treasury -- the Big Three credit rating agencies should not be rewarded for overrating securities and widespread economic harm. All SEC-approved credit rating agencies should be eligible to rate securities under TALF. Ultimately, the benefits of competition -- lower prices and higher quality -- are achieved when the number of competitors is maximized."

"Today's move is an encouraging first step -- but only a prelude to profound change in the credit ratings market. More must be done to protect the public, including investors and taxpayers, from improperly rated securities."