Puffer also identified transparency as a significant issue. Yet she drew attention to one often-overlooked aspect of the ABCP crisis: DBRS was the only CRA that elected to rate ABCP. The other CRAs refused to do so. “It’s unbelievable to me that a whole lot of investors didn’t bother to ask themselves, ‘Did S&P and Moody’s rate these things? If not, why not?’ and go digging for that information.” Puffer said it’s important to have a strong internal opinion to supplement the ratings. She believes there is a general lack of understanding in the investment community about the meaning and purpose of ratings, and advocates a move to “education coupled with transparency” going forward.
Price pointed out that CRAs are a necessary part of our financial system. “CRAs do provide a valuable economic service,” he said. “They’re not going to go away.” He sees the over-reliance of investors on ratings as one of the major issues in the ABCP crisis—an over-reliance that grew as the problems grew. “And that wasn’t the fault of the CRAs; it was actually a product of their success.”
Price feels that CRAs should be held accountable for their role in the crisis—for weaknesses in their methodologies or, at a minimum, for not disclosing those weaknesses more openly. He sees the need for regulatory involvement in certain areas, such as greater pressure for transparency, greater oversight of CRA procedures and prevention of the use of a single CRA in investment portfolio decision-making. Yet he cautioned against viewing regulation as a panacea., adding that “today’s regulatory solutions often become tomorrow’s problems.”
The consensus: any future regulation of CRAs should be approached in a thoughtful and measured manner. “You have to address the issue in a critical way,” affirmed Rousseau, “rather than with sweeping reform.”
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