- Moody's (MCO -3%) and S&P Global (SPGI -3.2%) drop after U.S. presidential hopeful Senator Elizabeth Warren expresses concerns that a top U.S. regulator isn't doing enough to ensure the independence of the credit ratings process, especially for loan securitizations.
- Her letter to Securities and Exchange Commission Chairman Jay Clayton urges the regulator to protect the economy from "risky l ending propped up by conflicts of interests between bond issuers and rating agencies."
- The structure, in which bond issuers pay for and get to choose which agency rates their bonds, "incentivizes the bond ratings firms to inflate bond ratings, in order to get an edge on competing ratings agencies and benefit issuers," Warren wrote.
- Warren notes that inflated ratings on mortgage-backed securities contributed to the 2008 financial crisis.
- Since the, the Dodd-Frank Act made a number of reforms to increase oversight of rating agencies, but the "SEC and other federal agencies have neglected or delayed" implementation of many of these change, she wrote.