The Dodd Frank Reform and Consumer Protection Act (HR 4173) was signed into law in July of 2010 in response to the housing bubble and recession.  Its goal was to add regulation to a slew of institutions after it was decided that the private financial sector was the leading cause of the crisis.  The bill stands at 848 pages and contains well over 100 different sections.  Section 929Z Subtitle C is titles “Improvements to the Regulation of Credit Rating Agencies” which is the section this paper will be using as its government source.

This section calls out the system of credit rating agencies as riddled with conflicts of interest and a major cause of inaccurate information and the housing bubble.  In the bill’s words, “This inaccuracy contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the health of the economy in the United States and around the world.”  The most important aspects of this section concerning rating agencies are establishment of an Office of Credit Ratings, the ability for this office to suspend and rating agency’s registration, and mandatory annual reports.

This bill, other than the parts mentioned before, changes very little.  Instead of the government just assuming that the credit rating agencies were being responsible, it just puts their responsibilities in writing.  Section is hugely vague and the extent of the government’s power is fairly unclear.  Right after the housing crisis, there were much more in depth talks about how to change the issuer pays model of the rating system.  But because of political deadlocks, these ideas would have never seen fruition and the bill settled on a much more toned down version.  In the end, this bill will do nothing to improve the rating agencies in the long term and a much more drastic solution needs to be implemented.

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