Jack Reed

Thank you, Mr. Kotz, for an extraordinarily insightful and informative report.

The purpose of the RATE Act is to strengthen the Securities and Exchange Commission's (SEC) oversight of credit rating agencies and improve the accountability and accuracy of credit ratings.

I am very pleased Chairman Dodd and Ranking Member Shelby have chosen to have a hearing examining proposals to enhance the regulation of credit rating agencies.

From these hearings, it is clear that problems at credit rating agencies contributed to the significant financial sector instability our country has been experiencing.

However, during the past year we have witnessed a significant amount of market instability stemming in part from the failure of these agencies to accurately measure the risks associated with mortgage-backed securities and other more…

I think it is important, because we specifically point out that their ratings would not be considered a forward-looking statement for purposes of Section 21(e) of the Securities Act.

The proposal I have made is not to change that liability standard but to change explicitly the pleading standard.

The Treasury proposal would require firms to register, subject them to high compliance costs, put at risk some firms' intellectual property, and hinder their revenue-generating ability.

One of the aspects of the legislation I proposed is to at least adjust the pleading standards and effectively, a private right of action would be, I think, a stimulus for a lot of due diligence.

In our judgment, the credit rating agencies shouldn't be able to opt out of having high standards and a level playing field.

Thank you very much, Mr. Chairman.

What I believe we have to do is to give legislative support to the SEC's efforts to focus on transparency through enhanced disclosure, and also to counteract the appearance or substance of conflict of interest.

Credit rating agencies are in the business of providing investors with unbiased analysis, but the current incentive structure gives them too much leeway to hand out unjustifiably favorable ratings.

I particularly want to commend Senator Shelby because it was his leadership really in 2006 that first gave the SEC the clear authority to begin to regulate the credit rating agencies.

Senator Reed's bill struck a very sensible compromise in my judgment.

I think this was something that we should pursue.

Should we have this agency dedicated funding, not through the appropriations process?

I think myself I would prefer it to be the Federal Reserve, but whichever--does have, I think, the need to look across our whole financial sector.

So it would be very clear that this regulator would be the primary regulator of all these functions, even if they feel under the range of CFTC or SEC.

Today's hearing addresses a critical part of this Committee's work to modernize the financial regulatory system--strengthening regulatory oversight of the safety and soundness of banks, thrifts, and holding companies.

This hearing will help determine where the corporate governance structure is strong, where it needs improvement, and what role the Federal Government should play in this effort.

I hope today's hearing will allow us to examine these and other proposals, and take needed steps to promote corporate responsiveness to the interests of shareholders.

I hope that if we do anything on corporate governance, I hope that it is modest and we realize that at the end of the day, a lot of factors led to the failures that we have had today.

We need to find ways to help public companies align their compensation practices with long-term shareholder value and, for financial institutions, overall firm safety and soundness.

Today's hearing will focus on corporate boardrooms and try to help us better understand the misaligned incentives.