Dodd-Frank Bill Liability Provisions Will Result in Higher Costs for State and Local Governments, Taxpayers, Business
Recently, the U.S. Chamber Institute For Legal Reform wrote to the Chairman and Ranking Member of the U.S. Senate Banking Committee warning them about the new liability provisions for ratings agencies contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
They warned that the Dodd-Frank bill would create major funding consequences for state and local governments, consumers and taxpayers, as well as for businesses. In effect, state and local taxes will increase, consumers will get hit with higher costs, and the costs of capitalizing a business will increase as a result of the law and its impact on credit rating agencies.
So despite being urged by the U.S. Chamber Institute For Legal Reform to seek alternative measures to achieve greater accountability over the credit rating industry and avoiding adverse consequences on the broader capital markets, Congress instead did what the lawyers asked for at the expense of taxpayers and businesses.
Supporting the Institute For Legal Reform's argument is a well researched scholarly paper written by Dr. Anjan Thakor of the John M. Olin School of Business at the Washington University in St. Louis, Missouri. Dr. Thakor is considered an expert in the finance sector and has been a key witness in a number of federal cases involving banking litigation.
In his paper, entitled "Economic Consequences of Proposed Changes in NRSRO Regulation," Dr. Thakor concludes that the proposals to change the legal liability standard for NRSRO/rating agencies will likely result in credit ratings becoming less informative about the fault risks, less responsive to new information, and may contribute to ratings becoming downward-biased. Thakor further asserts that this will likely lead to a higher cost of capitol for states, municipalities, and corporations and less aggregate corporate investment.
Despite being urged by the U.S. Chamber Institute for Legal Reform to seek alternatives measures to achieve greater accountability over the credit rating industry, and avoiding adverse consequences on the broader capital markets, Congress instead passed the negligence liability standard on credit rating agencies.
For a download of Dr. Thakor's paper, please click the link below and search Dr. Thakor.
"Economic Consequences of Proposed Changes in NRSRO Regulation"
