House Democrats want to remove a proposed regulation in a Wall Street overhaul bill that would end the ability of financial institutions to choose the firms that rate the risk of their investment products.
A panel of House and Senate negotiators working to blend a single bank regulation bill from House- and Senate-passed versions is expected to vote Tuesday on the House recommendation.
The Senate legislation, which is the base bill for negotiators, would require an independent board to assign ratings firms to assess the risks of new financial products. That requirement, proposed by Sen. Al Franken, D-Minn., would replace a long-standing practice whereby banks select and pay ratings agencies to rate their new offerings.
Critics of the current system argue that the relationship between financial firms and the credit agencies created conflicts of interest and that the agencies overrated risky investments that fueled the financial crisis.
Rep. Barney Frank, the chairman of the House-Senate conference committee, said House Democrats want to drop the Senate language, calling instead for the Securities and Exchange Commission to undertake a comprehensive study of how to assess risk for structured financial products.
Frank, D-Mass., suggests adding several House-passed provisions, including one that would prohibit a credit agency from both advising a financial firm about its financial instruments and then rating those same instruments.
Separately, Frank said the House will recommend that investment advisers of private equity firms with more than $150 million in managed assets to register with the SEC. The Senate version exempted private fund advisers from that requirement.
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